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1 Reason To Avoid AMD

Over the last couple months, I’ve shown you stocks to avoid…

Stocks to consider buying…

And some of the best stocks related to the coming Internet of Things…  Which you can find linked further below.

All these recommendations are to help you either avoid pain and terrible stocks.  Or to help you find potentially great stocks to invest in during this pandemic.

Doing both of things together will help you earn higher than average investment returns and build your wealth.

There are few safe places to invest your capital today. And this number is growing smaller every day this crisis lasts.

The key to continue compounding your capital is to keep investing well over time… Combine this with dividends and you’re well on your way to building a retirement account you can live off.

And this is huge part of things.

But another huge part of this is also losing as little capital as possible.

The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.

Both things are necessary to build wealth. But most only think of investing well.

Today, I want to show you 1 Reason To Avoid AMD.

1 Reason To Avoid Advanced Micro Devices

It’s Enormously Overvalued

Normally in these articles I talk about profitability, cash flow, the affects coronavirus is having on a company’s financials among other things.

But frankly none of those matter with Advanced Micro Devices (AMD) due to its huge valuation.

AMD designs and produces microprocessors mainly for the computer and gaming markets.

Its market cap is $106 billion.

And in most markets, it’s in second place – by a wide margin – to Intel (INTC) in these microprocessor arenas.

In most microprocessor industries Intel owns between 75% and 90% market share.

While AMD owns between 10 and 20% market share.

This leads to AMD earning far lower revenues, profits, and cash flows than Intel.

But those are stories for a different article because today I want to focus only on AMD’s gigantic valuation… Especially compared to Intel.

As of this writing AMD’s valuations are as follows…

  • Its P/E is 174.7.
  • Its P/CF is 125.7.
  • And its forward P/E is 83.3.

I look to buy companies with valuations below 20 on all these metrics to consider the company undervalued or at worst fairly valued…

AMD crushes this threshold.

Why below 20?

Because that means the company is at worst fairly valued… And if its significantly under 20 that means the company is undervalued.

When a stock is fairly valued or undervalued it gives you more margin of safety in investing terms.

This also means you have a much higher probability of earning higher returns owning its stock over time.  And these combined make the stock a less risky investment.

With AMD stock being so overvalued it means there is no margin of safety… That you have a far lower likelihood of making money owning its stock over time.  And these make the stock riskier.

How does this compare to Intel?

  • Its P/E is 9.4.
  • Its P/CF is 5.9.
  • And its forward P/E is 11.2.

This not only means that Intel is undervalued and gives you a huge margin of safety compared to AMD.  But this also makes it far less risky than AMD.

But why is AMD so overvalued?

Because Intel is having problems getting its next generation of chips out while AMD is not… This means AMD is taking some market share from Intel.

And these things combined have led people to buy AMD stock in droves.

To levels where it’s now far above where it should be valued.

This is an increase of 133.3% in only 6 months.

AMD stock is doing so well that it just hit an all time high two days ago… And then opened yesterdays trading at another all-time high.

This massive overvaluation is unsustainable unless AMD completely overtakes Intel as the #1 producer in the world of microprocessors.

And I don’t see that.

Intel makes far more money, has enormous market share that dwarfs AMD, it invests far more into its operations, and has far larger competitive advantages than AMD.

And even though Intel will have some short-term issues because of its inability to get its next generation chips out on time… I don’t see AMD flipping the script 180 degrees on Intel and taking their throne as the world’s microprocessor king.

At its current valuation that’s what it would take to keep up with its rising share price.

AMD will continue performing well over time… But I don’t see it taking Intel’s throne.

I require as much of a margin of safety and room for error as possible when investing in stocks because bad stuff always happens at some point.

If you’re buying AMD stock today there’s zero room for error due to its huge valuation.

For this reason of its huge valuation I recommend you stay far away from investing in AMD.

And to learn more about why we recommend you buy Intel click here.

Use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times.

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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