Intel Corporation (INTC), Advanced Micro Devices, Inc. (AMD): Why Should You Invest In This Growing Tech Company?

Potential Issues and Drawbacks

Despite its strategic advantages and encouraging moves, AMD still has some serious problems. Although it is not drowning in debt, its negative cash flow will eventually impede AMD’s ability to function and could impact its financial results or spur layoffs. Moreover, the firm is not as well-capitalized as some of its peers. Given these impediments, it seems likely that further cost-cutting measures are on the way.

Although AMD appears to be keeping up or even moving ahead of Intel Corporation (NASDAQ:INTC) in the product-development department, this might not be the boon that many observers expect it to be. As PC systems become less attractive to everyday computer users, investors may flock from “old-line” firms like AMD and Intel towards better-positioned firms that offer cloud-based computing services. In addition, chip-makers that are adequately positioned to capitalize on the growing market for mobile computing technology will benefit at the expense of their more sluggish peers.

Invest or Stay Away?

While Advanced Micro Devices, Inc. (NYSE:AMD) is clearly undervalued at its current levels, it might not be a screaming buy. Based on its financial health, strategic position and seemingly low valuation, investors can make a convincing case that NVIDIA Corporation (NASDAQ:NVDA) is actually a better long play. Indeed, it is worth noting that AMD’s price-to-book ratio sits at 6.7 and exceeds that of NVIDIA by a factor of four.

Investors who believe that AMD’s best days are ahead of it should feel comfortable with a long position in the company’s stock. However, there are plenty of risks to this type of trade. Savvy investors may wish to hedge their positions with dated options, tight stops, or another position in a rival chip-maker like NVIDIA Corporation (NASDAQ:NVDA). Since conditions can change quickly in the semiconductor market, these moves could be necessary to preserve liquidity.

Mike Thiessen has no position in any stocks mentioned. The Motley Fool recommends Intel and NVIDIA. The Motley Fool owns shares of Intel.

The article Why Should You Invest In This Growing Tech Company? originally appeared on Fool.com.

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