AMD shares were up 1.8% in mid-day trading on Friday at $4.37. Despite a very volatile and cautious week for the markets, AMD was up about 3% from this time a week ago.
Don’t think this is a universal bash against short sellers, nor is it a bash against anyone who doesn’t believe this time is different. Our take is that this time is very different. Either we will be proven wrong or the short sellers will be proven wrong.
To show why this time is different would take too long to discuss in a short piece on a Friday. Here are some of those key points we would consider as the “why” this time around versus previous periods:
- AMD is no longer a graphics and stagnant PC processor-only model; now it has the design wins for the Xbox One and PS4 gaming console upgrade cycle.
- The PC business has been in the toilet for years’ and now the PC market offers marginal upside rather than downside.
- AMD management team was always hamstrung and not fully in touch in the past; now the team is solid and it is even confident enough to realign its units.
- AMD has been pulling a move from Sirius XM — keep refinancing debt at better terms and extending out those maturities.
- AMD was largely considered behind the curve in technology advances for years; it now may be able to make more headway into servers and its customization efforts for large tech companies is likely buying it more and more goodwill among end-users at the new tech giants.
- AMD, like Intel, missed the boat on smartphones and tablets; very key hires out of Apple and Qualcomm now have AMD in the running for this space in the years ahead — albeit still only as a wild card.
- A recent analyst downgrade felt like an analysis of yesteryear; now we had two very positive analyst calls for upside in June from two firms.
Admittedly, a lot has been skipped over here. Much has even been left out — like NVIDIA. The coming earnings report could create short-term volatility, and maybe not even in a good way. Unless there are key departures and unless there is some indication that the turnaround’s long-term vision is not going to play out, we are looking way beyond this coming earnings report. Our view is later in 2014, 2015 and even into 2016.
We would point out that the short interest at the time of our call for it to potentially be a double was at the highest point of 2014 — up at 127.4 million shares. That short interest may have risen during June, but it is down handily since our call was made, and the stock is up 25% since the call to potentially double.
One last thought is if AMD’s turnaround just does not take hold. What if AMD keeps biting into Intel ahead above and beyond graphics and gaming processors? It only takes a couple points or a few points of market share for it to show up only modestly negative for Intel and exponentially better for AMD.
Now, consider this in closing. Intel now trades at almost three times trailing revenues, but AMD trades at 0.6 times trailing revenue. And finally, consider that Intel has to keep AMD around whether it wants to or not. Even if you just want to consider the model of yesteryear as the benchmark, Intel could have a monopoly and antitrust issues on its hands all over again if it crushes AMD.
Maybe the short sellers are making a short-term play only here. If they are betting against AMD longer term, they may very well be on the wrong side of the bet. Again, we will revisit this situation a day or two after the next earnings report. Unless the long-term turnaround is in jeopardy, we would even view any post-earnings weakness as yet another opportunity to get in.
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