For many years, Advanced Micro Devices, Inc.(NASDAQ:AMD) likely wouldn’t have made most people’s lists of stocks to buy.
For any reason, virtual reality or not.
However, AMD has suddenly become a renewed company, shooting up 140% year-to-date. A key to its continued resurgence will be its heavy investments in virtual reality.
AMD has plenty of experience with building sophisticated graphics chips, but the company also has been savvy about its business strategy in transitioning toward VR. It keeps a low-cost approach, which gives it the chance to establish an industry standard. Consider that consumers believe VR systems are overpriced, according to an Advanced Imaging Society survey. AMD doesn’t contribute to that; its latest chips are priced at below $200.
AMD already has major customers including Facebook and HTC, but Sony Corp (ADR)(NYSE:SNE) might be the most critical. This week, the company will launch the PlayStation VR system, which will cost about $499 (compared to $599 for the Rift and $799 for HTC’s Vive). Then realize the PlayStation install base is expected to hit about 53 million by the end of 2016, according to analysts at HIS.
Advanced Micro Devices also looks attractive thanks to improving fundamentals. AMD has shored up its balance sheet via things such as a recent $1 billion equity raise. It has reached profitability, and the top line is going again.
Plus, AMD has the potential to expand into other markets, such as the data center. Next year, the company plans to launch new chips for this market, which is currently dominated by Intel Corporation (NASDAQ:INTC).
Bundle this all up, and give it a nice price-to-sales multiple of 1.5X — better than similar tech stocks like Broadcom Ltd (NASDAQ:AVGO) and Texas Instruments Incorporated (NASDAQ:TXN) that sport multiples at over 5X — and AMD stock looks awfully attractive.
While Qualcomm, Inc. (NASDAQ:QCOM) does not build its own devices, it does create reference models that showcase what the company’s core technologies can do. The strategy has been very effective in getting other companies to adopt QCOM chipsets. It helps that hardware manufacturers should have no fear that Qualcomm will come out and compete with them in the space.
Well, QCOM is taking the same tact with its VR systems.
Just look at the VR820, which has two 4K displays, two cameras, 3D sound, four microphones and eye-tracking. And unlike an Oculus, there is no need to connect this to a smartphone or PC.
VR likely will remain a small part of Qualcomm’s business, but the market’s sheer size should still be able to provide significant lift for QCOM over the long haul. There also should be nice leverage from QCOM’s existing global customer base of device manufacturers, many of whom will be looking at the VR opportunity.
Meanwhile, QCOM continues to benefit from its core business, which is a big-time money maker. Qualcomm managed to squeeze out $1.4 billion in profits on revenues of $6 billion. There’s also buzz that QCOM will rev up its M&A activity, perhaps with the purchase of NXP Semiconductors NV (NASDAQ:NXPI). The deal would allow Qualcomm to benefit from growth markets such as automotive tech, the Internet of Things and mobile payments.
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