Is AMD A "Ten Bagger?"

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No, I don’t mean someone so ugly you need to put ten bags over the head before loving.  Well, at least John Dvorak didn’t mean that.

No, he meant that AMD was a prime candidate to have its stock price jump up by at least ten times within the next two years.

What are we to make of this?  Dvorak gives practically no reason for believing this other than “whatever goes around comes around” so we’re on our own judging this.

What does AMD have to do to have a chance of doing this?  Something is going to have to happen which will pull AMD into significant profit soon, with the probable prospect of big profits shortly thereafter.  Should that happen, so long as the stock market as a whole doesn’t stay in emo mode for years on end, there’s no reason to think the stock wouldn’t go from $2 to $20 or beyond.  

But what are the odds of AMD of doing that?  There are two possibilities:

1) AMD comes up with a hit CPU, one along the lines of Hammer.  Problem is, AMD won’t have anything like that until 2011 at earliest with Bulldozer.  While the Deneb generation will probably do better than Phenoms; it’s not going to become a huge hit, and it won’t rekindle enthusiasm about AMD on Wall St. unless . . . .

2) a lot of antitrust authorities and court ruling essentially shackle Intel and give AMD a big protected chunk of the CPU market.  For sure, Intel would probably appeal everything, but this would put a rocket under the stock price.  But again, how likely is that to happen? 

That the problem with all this, we’re talking about events that probably won’t happen, but might happen.  It’s unlikely that government agencies will shackle Intel, just as it is now unlikely that AMD will go out of business due to the recession, but “unlikely” doesn’t mean “no way” any more than it means “definitely” or “probably.”

Under these circumstances, there’s no such thing as investing in AMD.  If you want to invest, the CPU stock you invest in is Intel.  If you buy it and hold it long enough, the stock price will rebound, and you’ll make a decent profit from it.  However, unless AMD literally gets wiped off the face of the earth and Intel owns 99% of the CPU market, there’s no way its stock price will increase 10X in the next few years.  On the other hand, unless we’re going into Great Depression 2.0, so long as you’re patient, there’s little chance you’ll lose all, most, or even any of your investment.  The biggest risk with Intel is that you’ll make little on your investment. 

No, all you can do with AMD stock at this point is gamble on it.  There’s nothing wrong with that provided you really understand what you’re getting yourself into just as well as understanding what it means to go to the race track and bet on a horse at 10:1.  It means you’re probably going to lose; it certainly means you won’t win that kind of bet most or even much of the time.  Then again, if you make those bets all the time, and 20% end up winners, the payoff on the 20% more than offsets the losses on the rest.  OK, it’s less likely you’ll lose all your money making a single bet on AMD than you would betting on that horse, but you could very well lose most of it if things don’t go too well for them. 

That’s not necessarily a bad thing, provided you don’t take most or all of your retirement money along with Grandma’s and bet it on Green.  It’s a bet, but not a foolish bet.  A foolish bet would be to bet on AMD if you only thought the stock price would eventually double at best.  That would be too much risk, too little reward.  At $2 a share, AMD stock is high-risk, which means a high risk of failure, but if it beats the odds, it would offer very high rewards.

But it sure isn’t a sure thing, or anything close to it.  It’s a bet, certainly a good place for your gambling money if you can’t get to a casino or the like for a while, and perhaps a small part of a portfolio dominated by safe investment.  But it’s still a bet, and you should only bet money you can afford to lose. 

Ed

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