The curious case of AMD’s stock crash

As an aspiring geek and an average DIY-er, I’ve always loved the underdogs. And when it came to picking a CPU/GPU for the weekend computer builds, the choice almost always boiled down to AMD over Intel/Nvidia after heated debates with my nerdy gang. And boy, I’m glad I survived those debates and no one went trigger happy, unlike this unfortunate incident.

AMD always played smart and positioned itself as the underdog with cheaper prices taking on the behemoth Intel. Also, thanks to its smaller size, it was more nimble and introduced the latest/greatest first. Both Intel/AMD enjoyed their duopoly in the desktop/laptop era of the last decade but were caught off-guard with the sudden shift to mobile computing. This paved the way to the emergence of players like ARM & Qualcomm.

Though it lost out to ARM in the now dominant tablet/smartphones market, AMD has a near monopoly in the gaming market, especially consoles — it powers Xbox One, PS4, & Nintendo Wii. The GPU (Graphics Processing Unit) market is now seeing renewed interest with more people jumping onto the bitcoin mining frenzy. And with the launch of its Ryzen line up for CPUs which is getting rave reviews vs. Intel’s i5, things have started looking up for AMD as was seen in its third-quarter results yesterday.

Thanks to strong sales from Ryzen and Epyc, both based on its new Zen architecture, AMD finally swung to a profit with revenues rising 26% in the third-quarter.

In its enterprise solutions business, AMD signed up Amazon Web Services and Tencent as its new clients for its Radeon and Epyc series. With existing clients like Alibaba, Microsoft Azure and Baidu in this space, AMD is now the darling of datacenter/cloud enterprises.

But what spooked Wall St., was its grim fourth-quarter outlook. AMD said it expects fourth-quarter revenue to fall anywhere between 12–18% citing headwinds with competition from Intel & Nvidia intensifying.

This “conservative” outlook sent stocks swirling down 10%+ in after-hours trading as investors ignored the present and looked at the immediate future.

This is an excerpt from the AlphaNews Newsletter published at 5am EST on Oct 25. Please subscribe to our newsletter for more insights and stories.