AMD Bears Come Rushing In – Advanced Micro Devices, Inc. (NASDAQ: AMD)


After a great 2016 and beginning of this year, the shares of chip maker Advanced Micro Devices (AMD) have stalled. As of Monday's close, shares have risen slightly more than 1.2% in the year, with competitors much lower than Intel (INTC) and Nvidia (NVDA) as seen in the chart below. For a company that is in a better condition than a few years ago, I am still surprised by the negative feeling that is forming around AMD.

( Source: Yahoo Finance)

AMD shares had a great success after the last company report and a big rebate, which made me support the name. The Q3 report was very solid, with good results at the top and bottom, as well as an income guidance for the fourth quarter that was well above expectations. However, with the large increase in shares from their sub $ 2 levels a few years ago, it seemed not enough that they were impressed by holding shares above $ 14.

While there was not a ton of news at the beginning of this month, there were some investors who were really disappointed when Intel hired the senior vice president and chief architect of AMD's Radeon. A spike of $ 12.27 quickly collapsed along with a general weakness of the market, sending shares below $ 11 just a week later. That brings me to the main point of this article, which can be detailed in the following table.

( Source: NASDAQ AMD short page of interest)

After the bell on Monday, we obtained the update twice to the Nasdaq month with short interest, and showed an increase of more than 18.1 million shares for AMD. Currently there are more than 173 million short shares of this action, which represents more than 21.4% of the estimated float. While there have always been bears around this name, AMD is fast becoming one of the shortest stock in the market.

The number of short shares has now risen 10% from the 2015 high seen above, although that might not come as a surprise to some, the almost 24% increase in the outstanding stock count since then. What is more surprising is how quickly the short interest fell to a low of around 70 million shares last year, only to jump 145% since then. For a company of this size, I am surprised to see such big jumps / falls in short interest in such short periods of time.

The problem I have with the bear field is that AMD is in a much better place than this was a few years ago, even considering the large increase in stock. In January 2016, badysts were looking for only $ 4.10 billion in revenue this year and a non-GAAP loss of $ 0.08 per share. Now, badysts are seeking revenues of $ 5.25 billion for this year along with a gain of $ 0.13 per non-GAAP share. Revenue could approach $ 6 billion next year, along with the company perhaps achieving GAAP profitability. The balance sheet is also in better shape thanks to debt restructuring and other financial measures.

I just do not see how the bear argument works in this kind of badessment. AMD costs around $ 11 billion now, which is equivalent to 1.88 times the projected sales for next year. Nvidia is worth more than $ 128 billion (11.7 times the advance sales), while Intel goes for more than $ 208 billion (3.26 times the advance sales). AMD's revenues could be even better than expected if the Bitcoin craze continues, which makes one wonder why the company can not even get a 7% rating on the Nvidia / Intel average.

With the latest update of short interest in, I am very surprised to see a new high reported for AMD. Did the investors really get upset about an executive exit, or did they just continue to bet against the name after the Q3 report? With the continued increase in estimates of revenues and non-GAAP benefits, the valuation simply does not make sense to me considering how much AMD's competitors are valued in this market. With more than 21.4% of the float now, there is certainly an opportunity for a big short squeeze on any good news.

Disclosure: I / we do not have positions in any action mentioned, and there are no plans to start any positions within the next 72 hours.

I wrote this article myself, and expressed my own opinions. I am not receiving compensation for it (which is not from Seeking Alpha). I have no business relationship with any company whose actions are mentioned in this article.

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