AMD and the death of the crypto-mining GPU

(AMD stock and its options are extremely liquid as AMD is one of the top 10 most traded stocks.)

Previously, I’ve written about how AMD’s profitability has been inflated by the cryptocurrency bubble.  This will likely come to an end in the coming quarters as the market for video cards will shrink thanks to the emergence of ASICs for top cryptocurrencies.  We are already seeing the effects of this as prices of video cards continue to normalize at the retail level.  From PC Part Picker:

Most investment bank analysts anticipate that AMD’s earnings will go to the moon.  While that type of behaviour may help their employer earn underwriting profits if AMD chooses their employer for an equity raise, these optimistic projectons are unlikely to materialize.

I/B/E/S estimates for AMD, courtesy of Sentieo.

In my opinion, AMD is a compelling short as its earnings will likely shrink rather than grow in the coming quarters.

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A model portfolio of large cap stocks

I’ve started an experiment where I’m keeping a public portfolio of large cap stocks via the Motley Fool CAPS system- you can view it here.  I would like to see if I can generate value on the long side… something that I find much, much more difficult than shorting.

My criteria are:

  1. Pick only the quality businesses in a particular sector.  For example, Dollarama is the clear leader among discounters.
  2. Not overpriced.  For that reason, Amazon and Netflix don’t make the cut (just look at what happened to Amazon during the Dot-Com Bubble).
  3. I avoid industries where there are no clear industry superstars.  Oil and mining stocks simply don’t make the cut as none of them are quality businesses.
  4. Lastly, I avoid dying or shrinking industries.  Profits ultimately don’t grow in dying industries and therefore those stocks almost never do well.

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Heterogeneous computing / GPGPU (INTC, AMD, NVDA)

Heterogeneous computing refers to computing systems that use a mix of different types of computational units.  The type of heterogeneous computing that I am most interested in is rise of the general purpose graphics processing unit (GPGPU).  The industry trend has been to use the GPU graphics chip for purposes other than graphics.  Innovations in the GPGPU could cause some changes to the landscape between Intel, AMD, and Nvidia.  I believe that heterogenous computing will grow from a small niche into a larger one. Continue reading