John,
"QUESTION: PC sales grew by 20% in the last quarter, clearly unsustainable as it would indicate a doubling every year. Now, which company would you rather own if the growth rate comes down to 5% per quarter?"
Personally, I might be inclined to choose AMD.
Let's say Intel made every chip known to man. Let's also conveniently ignore the power of monopoly and assume magically fixed chip prices and constant margins. Well, since Intel already has 100% of the market share, their earnings growth will be linked directly to the chip demand growth rate, say the 5% in your example.
Now along comes little AMD or puny Cyrix to do battle with the big bad giant in our 5% growth world. If everybody is dead even, then everybody grows at 5%. But if our tiny hero starts taking market share away, then they can grow at a helluva lot more than 5%. So the ultimate question is: Is AMD taking market share away from Intel or not?
If a brash upstart can mount a competent, serious challenge to the perennial powerhouse, I'm inclined to bet on the upstart and take advantage of the inherent leverage that an initially low market share can provide.
Overly simplistic response, I know, but it's been a long tough week at work and it's the best this tired mind can do right now. To hell with stock research this weekend...I'm watching the football playoffs!
By the way, what ARE the respective market shares of AMD and Intel? |
