Everyone loves a good deal.
We love the feeling of discovering a hidden gem that everyone has forgotten. The poorly rated vintage Corvette with the small scratch in the quarter panel that you could easily polish. The big screen HDTV in the open area of your local electronics store.
You get the picture.
But even your most savvy bargain hunters have nothing on investors looking for "the next big thing." In fact, this speculative tendency to "arrive early" often misleads investors.
Their emotions prevail, as they inflate what are essentially short-term market trends in the main drivers of stock trading.
This leads to unreasonable expectations and equally unreasonable stock prices.
This leads to irrational trade.
One of the best examples of irrational expectations this year is Advanced Micro Devices Inc. (Nasdaq: AMD).
In July, the stock was up to an influx of revenue from the growing cryptocurrency mining market. Ethereum was the "next big thing," and investors speculated heavily on the value of AMD despite signs that this trend was not going to last.
Even Wall Street analysts were guilty of inflating AMD stocks amid Ethereum fashion, with several raising their ratings and price targets to honestly unsustainable levels. AMD's shares quickly exploded into overbought territory, driven by fashion and a crazy wave of emotional investment.
At the time, AMD needed to be corrected as "profit takers emerge, and the more bearish contingent of the brokerage community begins to probe valuation issues. and the cryptocurrency traps. "
This week, Morgan Stanley did just that. The brokerage firm said that "sales driven by cryptocurrency mining for AMD graphics chips will drop by 50% next year, a drop of $ 250 million. revenues". Morgan Stanley also noted that sales of video game consoles would drop 5.5% in 2018, but that is a drop in the bucket for AMD, and investors were likely expecting this already considering the age of the current generation of consoles.
You could almost hear the hearts of cryptocurrency speculators breaking as AMD stock plunged 9% after the report.
The real AMD
To remember the real reason why you should invest in AMD, we need to look to 2016. The company caught fire early last year when it previewed several new chips, including its new central processing unit (CPU) chipset, Ryzen, and its new graphics processing unit (GPU), Vega. Both products were very promising and AMD expected strong sales once the chips were launched.
But Ryzen and Vega blew up analyst expectations. When they hit the market earlier this year, Ryzen and his sister chip, nicknamed Threadripper, not only outperformed competing chips from Intel Corp. (Nasdaq: INTC), but they also beat them in terms of price. At the same time, Nvidia Corp. (Nasdaq: NVDA) touted its Titan Xp GPU as the fastest in the world, but AMD's high-end Radeon Vega Frontier Edition GPU quickly stole that title.
As a result, AMD saw its market share in the desktop PC market increase by about 45% to reach its highest level in the past 10 years at 31%, while Intel fell to 69%. It also steals market share from the server and data center side of Intel via the increasingly popular Threadripper processor.
And these are just the basic business operations of AMD. When we tackle areas such as virtual reality, driverless vehicles and artificial intelligence, AMD is already at the forefront and poised to become a market leader.
Many of you at this point may wonder: "But what about the AMD low income report last week?"
And I would answer with: "What ratio of low income?"
Look at the numbers. AMD earned $ 71 million in the last quarter from revenues of $ 1.64 billion. Not only did it exceed Wall Street expectations, but it brought shame to last year's loss of 50 cents a share from revenues of $ 1.31 billion. In addition, AMD has raised its forecast for year-over-year income growth from average to high adolescence to over 20%.
So why did the stock of AMD plunge about 20% after such a stellar report? Because the company said fourth quarter profits would drop 15% sequentially (although this still represents a 20% year-over-year increase). Again, it all comes down to an irrational level of bargain hunting and over-emotional trading.
Invest in advanced micro-devices
But you're in luck! This emotional storm left AMD's trade at a considerable discount … and a good deal considering its considerable growth potential – AMD should see sales increase by about 17% a year next, against 12.3% for Nvidia and 2.3% for Intel. .
The stock has more than 30% up until next year. How many other large companies apart from Alibaba Group Holding Ltd. (NYSE: BABA), can you say the same?
So ignore the hype of cryptocurrencies and focus on AMD's commodities and its potential with advanced technologies like AI and data centers. I don't promise you a smooth ride, but it should be pretty profitable.