Why Short Interest in AMD Is Dissolving

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In mid-April, Advanced Micro Devices Inc. (NASDAQ: AMD) short sellers held around 193 million shares. That was more than 10 million more than the total on the previous settlement date just two weeks earlier, and it was the highest level of short interest in the past 12 months. By the close of the short interest reporting period ended August 15, short sellers had winnowed their shares to around 146 million.

In the most recent two-week period, short interest in AMD dropped by nearly 13%, from 167.92 million to 146.33 million, while days to cover remained at around two. The stock’s share price rose by 5.8% during those two weeks. That was just a prelude, however, to what lay ahead.

Since August 15 AMD stock added just over 20% as of Friday’s close and closed at a multiyear high of almost $24.00.

AMD reported quarterly results last week that topped revenue and profit estimates and had analysts gushing about the company’s prospects. The enthusiasm may be due more to the problems faced by chief rival Intel Corp. (NASDAQ: INTC) than anything else.

Rosenblatt Securities analyst Hans Mosesmann told CNBC:

Make no mistake, Intel is going to have to fix this and it will take many, many, many years. Their process technology disadvantage, which I think is broken, will take five, six, seven years. I don’t think that business model works by them being behind by a year or two in terms of process technology.

AMD is preparing to introduce 7-nanometer chips later this year and Intel remains stuck a 14-nanometer technology, although the chipmaking giant has promised 10-nanometer technology for years. Mosesmann thinks AMD, which today claims about 1% of the market, could attain a market share of some 25% “over the next several years.”

For AMD that means it has to execute. Expectations will remain high and shareholders are likely to punish severely any blip. For short sellers, that means they have to pick their spots.

AMD shares closed at $23.98 on Friday, after posting a new 52-week high of $24.00. The stock’s 52-week low is $9.04, and shares traded up nearly 4% in Monday’s premarket at $24.91. The consensus price target on the stock is $18.41.