After Intel (NASDAQ:INTC) posted quarterly results on Oct. 22 that missed expectations, investors bought Advanced Micro Devices (NASDAQ:AMD) stock instead. That will prove a risky move: AMD is acquiring Xilinx and its graphics card division is faring poorly. AMD’s desktop CPU has the potential to lift revenue. The semi-custom product sales are on the verge of rebounding, too.
In Q3, AMD posted revenue of $1.13 billion from the Enterprise, Embedded, and Semi-Custom segment. SoC unit sales will not start to pick up until Sony (NYSE:SNE) and Microsoft (NASDAQ:MSFT) launch refreshed consoles. Still, AMD’s server chip sales are accelerating. AMD’s revenue grew by an impressive 56%, thanks to strong PC, gaming, and data center product sales.
Xilinx Buyout
To take advantage of its inflated stock price, AMD will buy Xilinx for $35 billion, in an all-stock deal. This puts AMD further into competition with Intel in the data center chip market. Intel has years of experience in this space, through its 2015 acquisition of Altera for $16.7 billion.
Assuming that Intel is also struggling to grow Altera’s business, AMD’s Xilinx acquisition will pressure Intel further as the beaten-down giant underperforms.
In the near-term, investors will need to assess Xilinx’s competitive strengths against Altera. If Intel is not struggling in this space, then AMD sets itself up for two competitors: Xilinx against Altera and its Radeon GPU against Nvidia (NASDAQ:NVDA).
Avoid AMD stock until the selling pressure ends.