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If your only semiconductor holding is Intel Corporation (NASDAQ: INTC ), you may think this has been a mediocre year for semiconductor stocks, but you would be wrong. VanEck Vectors Semiconductor ETF (NYSEARCA: SMH ), which tracks chip stocks, is up 26% for the year so far, while Intel has gained just 8%. Qualcomm Inc. (NASDAQ: QCOM ) is up 30% and Nvidia Corporation (NASDAQ: NVDA ) has doubled.
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But the star of semiconductor stocks is a company that was all but left for dead at the start of the year.
Believe it or not, Advanced Micro Devices, Inc. (NASDAQ: AMD ), the old Intel punching bag, is the star. So far in 2016, AMD stock is up nearly 135%. You could have picked Advanced Micro Devices up for less than $2 as recently as February. Now it's flying off the shelves while approaching $7.
What happened? CEO Lisa Su.
What Lisa Su Has Added to AMD
I have been a fan of AMD CEO Lisa Su ever since she stepped into her present job two years ago. I liked the plan left by her predecessor Rory Read. I liked the idea that the Taiwanese-born Su might be able to win contracts with Chinese OEMs.
Although early results were disappointing compared to other semiconductor stocks, I still pounded the table for AMD stock, noting that she had just been named lead chip designer and that the company's new Carrizo chip held promise.
Patience has finally been rewarded. Advanced Micro Devices delivered revenues of $1.027 billion during the June quarter, with net income of $69 million, almost 7% of that revenue. Sales were up over 5% from the previous year. Best of all, Su was actually able to cut the debt-to-assets ratio, which had reached a ruinous 75%.
The company is not yet out of the woods. If you look at the whole period of 2012 to 2015, you will see rising debt levels, and a long string of losses. Advanced Micro Devices hasn't had positive operating cash flow since 2011, although investing cash flow has finally turned around.
What Sets It Apart From Other Chip Stocks?
To some extent AMD stock is benefiting from renewed interest in its entire sector, the idea being that with the rest of the technology group doing so well, at some point the semiconductor stocks were bound to do well, like a dead cat dropped from a high building.
But the Su strategy is starting to show some promise. Its new Zen processors hold a security advantage over those made by Intel. Its Polaris graphics chips are improving at an accelerating rate. Su has shown herself willing to make hard decisions, like scuttling a gaming app that was flailing against one from Nvidia.
What made small investors take notice was last week's news that Alibaba Group Holding Ltd (NYSE: BABA ) will use its graphics chips in its new cloud data centers. Re-purposing graphics chips as general purpose cloud server chips is truly a game-changer, and could actually threaten Intel's hold on the server space.
Having fixed the product line, in other words, Su finally has something to sell to her Chinese contacts. New designs have been licensed to a Chinese manufacturer, and the stock market is finally starting to take notice.
Bottom Line on AMD Stock
Skeptics remain, however, and a lot will depend on Advanced Micro Devices' third-quarter earnings report, due out Oct. 20. Analysts are whispering about a small loss, but on sales of $1.21 billion, up nearly 20% from the previous quarter.
If AMD delivers a profit, even a small one, it could be headed for much bigger things in the chip stocks space, and Lisa Su could be on her way to becoming a Silicon Valley legend.
Dana Blankenhorn is a financial journalist who dabbles in fiction, his latest being The Reluctant Detective Travels in Time . Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn . As of this writing, he owned shares of INTC.
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