Everyone loves the deal.
We love that feeling of revealing a hidden value that everyone else didn’t notice. Incorrectly rated vintage corvette with a small scratch on the quarter panel that you could easily remove. A large-screen HD TV in the open box area of your local electronics store.
You get the image.
But even your savvy shopping hunters have nothing against investors looking for the “next big deal”. In fact, this speculative quest to “come early” often misleads investors.
Their emotions prevail as they inflate, in effect, short-term market trends, into major stock trading drivers.
This leads to unreasonable expectations and no less unreasonable stock prices.
This leads to irrational trade.
One of the best examples of irrational expectations this year Advanced Micro Devices Inc. (Nasdaq: AMD).
In July, stocks increased on the inflow of profits from the growing cryptocurrency mining market. Ethereum was the “next big deal,” and investors were heavily speculating on AMD’s price, despite signs that the fashion would not continue.
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Even Wall Street analysts were guilty of inflating AMD shares against the backdrop of Ethereum fashion, and somewhat raised their ratings and pricing to, frankly, volatile levels. AMD shares quickly hit overbought territory due to the oddity and wild surge of emotional investment.
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Then AMD had to be fixed, because “there are newcomers, and the more the bearish contingent in the brokerage community is starting to sound on valuation issues and pitfalls.”
This week Morgan Stanley did just that. The brokerage firm said that “sales of AMD graphics chips related to cryptocurrency mining will fall by 50% next year, or a decrease in revenue of $ 250 million.” Morgan Stanley also noted that game console sales will decline by 5.5% in 2018, but this is a drop for AMD, and investors probably already expected this, given the age of the current generation of consoles.
You could almost hear the heart of cryptocurrency speculators breaking when AMD shares fell 9% after the report.
To remember the real reason for investing in AMD, you need to look back at 2016. The company caught fire early last year after reviewing several new chips, including a new Ryzen CPU chipset and a new graphics processing unit (GPU), the Vega. Both products had significant prospects, and AMD expected strong sales after the release of the chips.
But both Ryzen and Vega knocked analysts’ expectations out of the water. When they hit the market earlier this year, Ryzen and its family chip, dubbed Threadripper, not only outperformed rival chips from Intel Corp. (Nasdaq: INTC), but also beat them in price. At the same time, Nvidia Corp. (Nasdaq: NVDA) touted its Titan Xp GPU as the fastest in the world, but the top-of-the-line AMD Radeon Vega Frontier Edition GPU model quickly stole the title.
As a result, AMD’s market share in the desktop market increased by approximately 45% and reached 31% to its highest level in 10 years, while Intel fell to 69%. It also steals market share from Intel’s server and data center through the increasingly popular Threadripper processor.
And these are just AMD’s core business operations. When we get to areas like virtual reality, driverless vehicles and artificial intelligence, AMD is already at the cutting edge and ready to become a market leader.
Many of you at this point may ask, “What about AMD’s weak earnings report last week?”
And I would oppose, “What weak incomes are reported?”
Just look at the numbers. AMD earned $ 71 million last quarter with revenue of $ 1.64 billion. Not only did it outpace Wall Street’s main expectations, but it also disgraced last year’s loss of 50 cents a share on earnings of $ 1.31 billion. %.
So why after such a stellar report, AMD shares fell by about 20%? Because the company said profit in the fourth quarter would decline 15% consistently (though that’s still 20% from last year). Once again, it all comes down to the irrational level of the hunt for deals and the excess of emotional trading.
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But you are in luck! This emotional storm has led to AMD trading at a significant discount … and a considerable deal given its significant growth potential – next year AMD sales are expected to grow by about 17% compared to 12.3% for Nvidia and a slight 2.3% for Intel.
Next year, the shares will rise by more than 30%. About how many other large companies besides Alibaba Group Holding Ltd. (NYSE: BABA), can you say so?
So, ignore the hype with cryptocurrency and focus on AMD’s core products and their potential with leading technologies such as AI and data centers. I don’t promise you a smooth ride, but it should be very profitable.