AMD ran up 69% last year. Can it do it again? Tony Mitchell, who has outperformed all U.S. equity mutual funds for the last 10 and 15 years, first told us to buy AMD in January 2018 and made it his top pick for 2019. History may be repeating itself as Intel CPUs have recently been revealed to be vulnerable to a new attack called Zombieload, that does not appear to affect AMD CPUs.
Why AMD Ran Up 69% Last Year
In January 2018, When Intel revealed announced their CPUs were vulnerable to attacks called Spectre and Meltdown, they released software patches to address the problem. However, early reports surfaced that the patches reduced Intel’s CPU performance between 5% and 25%. Intel said that the performance degradation was work-load dependent and since most people don’t fully utilize their CPU they would not notice it.
While true about most users, there are customers who do fully utilize their CPUs — corporate datacenters. For these customers, installing a patch that reduces CPU performance by 25% is like a 25% price increase because they now have to buy 5 CPUs to do the same work that 4 used to do.
This did not immediately benefit AMD because Intel said that Spectre and Meltdown were industry-wide problems meaning that AMD CPUs were equally affected. This turned out to be only partially true.
AMD CPUs are significantly less vulnerable to Spectre and Meltdown because AMD CPUs do not use the feature that these attacks exploit. While not immune from these attacks, AMD’s software patches do not exact the same performance penalty as Intel’s. The advantage AMD gained in the datacenter market is largely why the stock ran up 69% in 2018.
It’s Happening Again
The researchers who discovered Spectre and Meltdown have discovered a new vulnerability they call Zombieload which affects all Intel CPUs since 2011. Importantly, they say AMD CPUs do not appear to be affected.
Apple just announced that enabling the software patches to fully mitigate Zombieload, which they call Microarchitectural Data Sampling (MDS), caused as much as a 40% performance reduction in their testing. I want to see what kind of performance degradation occurs on Red Hat, Centos, Ubuntu and other flavors of Linux, but this is looking good for AMD.
My Take: While Intel will no doubt have a way to spin this news that is more favorable to them, I’d rather depend on Tony Mitchell’s views when it comes to the investment implications.
Tony first bought AMD in October 2014 at $3.45. He recommended AMD in January 2018 and made it his top pick for 2019 when it was at $19. At today’s price of $27, he has already made a lot of money on his original investment and he sees a lot more upside in 2019.
Tony’s Internet Fund has an 18+ year track record that extends through 2 market crashes, numerous corrections, and sector rotations. Over that period, Tony averaged 17.50% a year which compares well to the S&P 500’s 5.83% return for the same period. He is up 31% year-to-date vs. 18% for the S&P 500.