Let the Microchips Fall Where They May: Advanced Micro Devices, Inc. (AMD)

Page 1 of 2

Wondering where to put your money in the upcoming console war between the Sony Corporation (ADR) (NYSE:SNE) PlayStation 4 and Microsoft Corporation (NASDAQ:MSFT)’s new Xbox console? Sony’s stock price has been on a slow decline since 2011 and Microsoft has, for the most part, held steady since 2009 in a kind of soft rut. With the Wii U already on the market and not selling well, it looks like Nintendo Co., Ltd (ADR) (NASDAQOTH: NTDOY) is already out of the real race. Maybe the best idea is to invest a little further down the food chain, and look at who is manufacturing the microchips that will be powering the new consoles.

Advanced Micro Devices, Inc. (NYSE:AMD)When Sony developed the PlayStation 3, they worked with NVIDIA Corporation (NASDAQ:NVDA) to develop the RSX “Reality Synthesizer” graphics processing unit, or GPU. Sony oversaw manufacturing, while Nvidia provided support to the manufacturers.

Nvidia also worked with Microsoft in the development of a GPU for the original Xbox, but when it came time to develop the Xbox 360, Microsoft chose to license a design by ATI and handle manufacturing itself. In 2006, Advanced Micro Devices, Inc. (NYSE:AMD), Nvidia’s chief rival, acquired ATI.

So where does that leave us today? With rumors circulating that Sony will be going with AMD for the GPU for the PlayStation 4. Similar rumors are circulating that Microsoft will also include AMD GPUs in the next Xbox. Nintendo used AMD technology in the Wii U, and while the unit isn’t selling as well as expected, no one is faulting the processors. So if it’s true that the new Xbox and the PlayStation 4 will also use AMD GPUs, then, for the first time, graphics superiority will be taken out of the equation for consumers trying to decide between the three consoles. Assuming, however, that the rumor mill may be shockingly inaccurate, let’s look at both AMD and Nvidia, because it really would be shocking if one or both of them weren’t providing processors for the new consoles.

With a market cap of $1.99 billion and a five year stock chart that looks disturbingly like a roller coaster ride, AMD doesn’t look like a good bet long term.  But with its current low price, it might be worth a short term investment aimed at raking in some quick cash and then letting it go. Of course, that will only happen if the console rumors are true.

Nvidia, on the other hand, has a much more stable stock history, especially over the last two years. With a market cap of $7.89 billion, an 11.57% return on average assets and a 15.86% return on average equity in 2012, Nvidia is the larger and stronger of the two companies. Nvidia also had a net profit margin of 14.53% in 2012. By comparison, AMD’s net profit margin for 2012 was -21.82%, their return on average assets is -26.42%, and their return on average equity is -111.18%. That sets my risk-averse teeth on edge.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!