I recently wrote an article on Advanced Micro Devices (AMD). Specifically, my point was that Apple (AAPL) switching to ARM processors is actually a blessing in disguise for AMD. I also touched on the potential detriments to Intel (INTC) that come with the move.
But now, I want to further elucidate my thoughts on the AMD-Intel war. The main reason I felt compelled to write again about AMD is the news that came out just as my article was published. Said news is not yet posted on Seeking Alpha, so I’ll just have to give Medium the click: AMD just announced its launch of the Ryzen Threadripper Pro.
This piece of news is the latest step toward an increasingly obvious and overwhelming victory over Intel in the processor wars. Until recently, AMD was the clear loser in this war, always lagging behind Intel and thus being forced to market its products on price, not performance. Yet, in the past few years, we have seen AMD – a company much smaller than Intel – out-design Intel processor after processor to where AMD is now the go-to solution for performance.
Yet, AMD is still a laggard in a way. The best analogy here is postwar Japan: Lacking the finances of US and technologically behind, Japan still managed to catch up – and even outpace – the United States via copying US technology while simultaneously innovating and improving upon that tech (i.e., not creating parallel or novel tech, necessarily, but simply outperforming the US on technology that already existed, such as cars and cameras). It was this type of practice that led Japan to become the strongest world economy by many measures in the 1980s and 90s.
AMD appears to be walking in Japan’s footsteps. It is as if someone at AMD is looking at every single Intel product available and asking, “how can we create a better version?” The Threadripper Pro, as per its specs, is the newest answer to such a question, potentially pushing the Intel Xeon W off the market.
The Threadripper Pro 3995WX, for example, offers 64 cores and 128 threads. No model of Intel’s Xeon W can match this. For an equivalent Intel solution, you would actually need to run two processors.
This is a major benefit for AMD overall. The company has slowly been pushing Intel out of the market after market, with the most recent accomplishment being the console market. Now, with Threadripper Pro offering more performance benefits than Xeon W, AMD is aiming to best Intel in the science/data workstation market.
To be Intel these days must be painful. AMD’s naming of products is certainly a style in Intel’s eye, with Ryzen 3, 5, 7, and 9 all being numbered so to directly compete with Intel’s i3, i5, i7, and i9. While AMD used to be the kid in the schoolyard attempting to emulate Intel, now AMD is just bullying Intel by releasing superior versions of Intel products – but only after Intel first releases them (as is the case with Threadripper Pro).
This flow of product releases from Intel and AMD could be seen as a pro for Intel, as clearly Intel is releasing generations of processors before AMD. But, in practice, this does not matter. Like Japan, AMD needs only to outcompete the main innovator in quality, performance, and price to become the market leader.
And so, I see the release of Threadripper Pro as another piece of evidence for the AMD bullish/Intel bearish thesis. While many tech and semiconductor investors like to dip into both of these stocks, as we watch the processor wars move forward, we see AMD increasing its luminance while Intel becomes duller. If you want a market-neutral position, a pair trade (long AMD, short Intel) makes a lot of sense here; if you just want exposure, overweighting AMD also makes sense.
While I reiterated my thesis in my last article – AMD is fairly valued at this point but will see high short-term volatility – I want to add to it the playable idea of AMD outperforming INTC. This is playable as per the aforementioned pair trade or overweighting AMD vs. INTC in a diversified semiconductor portfolio. But even as a short-term trade, “long AMD, short INTC” seems logical based on both the processor world news cycle (e.g., Threadripper Pro release and Apple’s migration to ARM) and via various technical analyses (e.g., the Fibonacci pattern shows INTC having a proclivity of retracing its gains, while AMD shows a tendency of retracing its losses).
For now, I am upgrading my rating of AMD from “neutral” to “bullish,” though I still believe the tech market as a whole is due for a pullback. I am going to label INTC “neutral” due to it being stuck between a strong resistance and support level but without any significant catalysts for the company to break out one way or the other. Here is how I would play these stocks in the short term:
- AMD: Sell ATM puts (creating a synthetic covered call)
- INTC: Sell strap straddles – i.e., sell two OTM calls for every OTM put
The above strategy essentially says that you believe AMD potentially has a bit more room to run (but needn’t so for you to turn a profit) and that INTC will likely stay around its current level, with a higher probability of falling than rising. Because of the exposure to downside risk, these option strategies are only suitable for short-term trading – I’m talking a couple of weeks here. If volatility spikes, you’ll be best advised to take your profit and walk.
Let me know what you think about the new Ryzen Threadripper Pro below.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
