- Short interest data and analyst price targets suggest that short term risks exist.
- Investors would do well to see if AMD can hold onto its recent market share gains.
- AMD's recent debt restructuring and two key emerging trends indicate an improved long term outlook.
AMD (NASDAQ:AMD) investors have a lot of factors to weigh right now. Recent short interest data and analyst price targets indicate a potential downside risk for the stock in the near term. AMD's market share gains from NVIDIA (NASDAQ:NVDA) are a positive, but it's best not to take these numbers at face value. AMD's recent move to restructure debt coupled with two key emerging trends suggest that the long term outlook has improved significantly for the company.
First, The Near Term Risks
The latest short interest data shows that short interest in AMD has risen again, after falling to its 52 week low last month. In fact, it's reportedly one of the most shorted NASDAQ stocks, with the likes of Intel (NASDAQ:INTC) and Micron (NASDAQ:MU) for company.
As of August end, short interest in AMD had fallen to its lowest levels in a year, both in terms of the number of shares shorted, and as a percentage of AMD's float. Short interest as of 31 August stood at ~70.8 million shares, representing ~10.9% of AMD's float. Latest data released on 26 September shows that short interest has risen again, jumping nearly 14%. Short interest as of September 15th (released on 26th) stands at just under 80.6 million shares, translating to little less than 12.5% of AMD's float.
What's more, the probability of a short squeeze is also at its lowest in the last twelve months, with 'days to cover' at 1.86. With average daily trading volumes spiking ~64% to 43.37 million during the fist half of September, 'days to cover' has fallen from 2.69 in the preceding fortnight. This means that in the event of a consistent uptick in AMD's stock price, short covering will have a relatively low positive impact on the stock price.
As things stand, analyst price targets also indicate a potential downside in the short term. The consensus price target of 18 analysts for AMD is currently at $6.12, nearly 6.5% lower than its previous closing price of $6.54. While analyst price targets aren't really the writing on the wall, they do reflect the sentiment of a well-informed section of the market.
Keep A Close Eye On AMD's Market Share
Over the last twelve months, AMD has gained some much needed ground, snatching back a sizeable chunk of GPU market share from NVIDIA (NASDAQ:NVDA). According to Jon Peddie Research, AMD's market share has risen sharply over the year.
|GPU Suppliers||Market Share In Q2 2016||Market Share in Q1 2016||Market Share Q2 2015|
This stands in contrast to the period from Q2 2014 to Q2 2015, when AMD saw its market share dwindle from nearly 40% to under 20%. That said, while the recent gains are great for AMD, investors would do well to keep a close eye on these numbers, because historically, AMD's market share has peaked in Q2, subsequently losing ground to NVIDIA. That's been the trend since 2012, with the exception being 2015, when AMD's market share actually fell further.
What's more, its important to note that this might also have something to do with a shrinking market size, coupled with NVIDIA's focus on higher end products. An article on The Motley Fool discusses these aspects in detail, pointing out that:
"AMD winning market share during the second quarter may have been driven more by NVIDIA's focus on the high end, leaving the mainstream to AMD, than anything else."
The Long Term Outlook For AMD Stock Is Improving
AMD recently undertook an exercise to restructure its long term debt, proposing to partly pay off and partly refinance this debt at lower interest rates. AMD decided to fund this exercise with the issuance of common stock and convertible debt, both of which could dilute equity, hurting investors in the short run. However, AMD has made good progress on this front, and the move should improve AMD's financial position a year from now, strengthening the company's long term narrative.
Coupled with other factors, AMD's move to restructure debt has earned the company a slew of positive endorsements from analysts, including the likes of Bernstein and Jefferies. This post on 24/7 Wall St. lists the opinions of various analysts and insightfully highlights how the sentiment has changed towards AMD.
"Its consensus analyst price target is now $6.12, according to Thomson Reuters. That consensus target was $6.01 a week ago, $5.25 a month ago, $5.19 two months ago and $3.95 at the end of June."
The theory that market sentiment has turned significantly less bearish is also supported/reinforced by another set of data points, the long term trend in short interest. Short interest in AMD has declined significantly since the beginning of 2016, falling from ~135 million shares or ~21% of float, to bottom out at ~71 million shares and ~11% of float at the end of last month. And while short interest has seen an uptick again this month, the change is less significant in the larger context. So, while the short term risks exist, the long term outlook for AMD seems relatively more positive.
Summing It Up
Recent short interest data and analyst price targets suggest that there's a potential downside risk. While AMD's recent market share gains bode well for the company, investors would do well to wait and watch if the company can sustain this trend. While the level of risk seems elevated in the near term, AMD's long term outlook has improved over the last couple of months. Given the risks, conservative investors might want to stay away from AMD stock for now.
See our recent coverage of AMD to catch the latest news and analysis.