Recent news suggest that Advanced Micro Devices insiders are selling the stock? However, is it really true? Should you sell AMD stock too?
Shares of Sunnyvale, California, based AMD (NASDAQ:AMD) have advanced higher through four straight trading sessions. AMD stock closed the last trading session at $13.33 per share. The recent trading activity should come as a relief to AMD bulls, as the stock had sold off following the recent Ryzen release. In an earlier post, we did highlight why we thought now was too early to write off AMD stock, and well the recent movement in the stock price seems to support our thesis. We now have even more reasons to believe AMD stock is a good buy, even after the monstrous gains it has delivered over the last year.
Insider Selling? Think again.
The news mills have been rife with a story of AMD insider 'Mubadala development company' offloading AMD shares recently. The source of the news was a recent Form 4 filing with the SEC, which shows that Mubadala development company did offload nearly 45M shares at an average price of $13.63, taking the total value of the transaction to $613.35M. However, that's just one part of the story. So what's the other part?
Well, Mubadala is only selling a partial stake in AMD so that it can increase its stake in the firm over the long term. Well, if that didn't really make much sense, let us explain. Mubadala development sold 45M so that they can exercise their AMD warrants to buy shares at a price of $5.98 a share. The warrants come with a clause which caps Mubadala's ownership in AMD, directly or through any of its subsidiaries at 19.99%. In case you want the nitty gritties, the math and logic behind the sale, Austin Craig has got you covered, and his recent post on Seeking Alpha makes for an interesting read. In short, Mubadala will effectively increase its stake in AMD to 17.4%, from a current 15.6%, if it chooses to exercise all its 75M warrants.
More interestingly, Goldman Sachs (NYSE:GS) was the other party in this transaction. Yes, the transaction gives Goldman Sachs a 4.8% stake in AMD (based on current 940.76M shares outstanding). And why would the investment major buy into AMD? Well, for the same reason as other investors do. To buy low and sell high. To make a gain. In other words, Goldman Sachs obviously believes AMD stock is headed higher, which should make this a profitable trade. But, what exactly could trigger the upside?
AMD Naples launch
The recent launch of AMD's Ryzen line up of CPUs didn't go exactly as planned. After initial specs and benchmark tests earned the company rave reviews, the actual user reviews were mixed. Mark Walton of Ars Technica summarized the Ryzen launch in just one statement, which read "Ryzen is an excellent workstation CPU, but gamers should look elsewhere." While the Ryzen launch was not up there with expectations, it's very likely that AMD did just enough to gain some market share. Not good enough to blow away Intel (NASDAQ:INTC), but probably good enough to take a few percentage points off its bigger rivals share. And, given that Ryzen is the first of the Summit Ridge launches, the solution is likely to get better with future offerings.
However, the next leg up in the price will be driven by the launch of AMD's server version of Zen CPUs, the Naples line up, to be launched in the coming months. Why? Well, there are two reasons. One, AMD already has a presence in the PC market with a near 20% market share while Intel has near monopoly in the server CPU market (near 99% share). So, grabbing some share in the server market will probably be a bit easier than incremental market share in the PC market.
Secondly, the data center market is positioned for explosive growth over the next few years, which should drive demand for server chips to new highs. In contrast, the PC market has been in a secular decline for the last few years and seems to have hit a mature state with long refresh cycles. Hence, a competitive product in the server market will give AMD exposure to a rapidly growing market and potentially, a new revenue stream.
One of the last reasons to buy into AMD would be the solid technicals driving the stock. As highlighted in an earlier post, periods of bullish trends in AMD stock price have been supported by high volumes, while pullbacks have lacked the volumes to build any sort of conviction. More recently, AMD stock tested its 50-day moving average, following the Ryzen launch. The stock has now bounced off the 50-day moving average, which has offered strong support to AMD stock price over the last few months. AMD stock is a good buy as long as the stock does not breach its 50 day moving average, which currently sits at 12.21.
The rally in AMD stock price was interrupted by a not-so-impressive Ryzen launch. However, recent trading activity suggests that the bulls are back in command here. The bounce off from the 50-day moving average, price gains through four consecutive trading sessions and the news of Goldman Sachs buying a big stake in the firm imply that the upward momentum in AMD stock is likely to continue. AMD continues to be a good buy.
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