Shorts Are Fleeing Advanced Micro Devices, Inc. Stock

  • AMD's short interest drops again, about 75 million short positions have been closed over the last year.
  • New releases and upcoming Zen CPUs could be fueling the AMD-related bullishness in the market.
  • Rally in Advanced Micro Devices, Inc. stock could continue.

Advanced Micro Devices, Inc. (NSDQ:AMD) shareholders have been on a roll lately. Stock price of their company has risen by 200% over the past year alone and there’s still seemingly no stop to its rally. The chipmaker, which was once considered as a financially distressed loser, is now leading stock indices with its blockbuster stock gains. But after such an extensive rally, will the bullish sentiment around AMD stock simmer down going forward? Let’s take a close look at the company’s latest short interest data to have a better understanding of the matter.

Short Interest Scenario

Let me start by saying that short interest is essentially the total number of short positions that are yet to be covered. For instance, if traders are piling up on short positions and betting against the stock, short interest will rise. Likewise, if there’s an ongoing short covering in a company’s stock, its short interest will decline in the next reporting cycle. The data is released by FINRA on a bi-monthly basis and it provides us with insights about market sentiment relating to any particular stock; the data is like a barometer of market sentiment.

Screen Shot 2016-07-20 at 4.08.24 PM

(Source: YCharts)

Now, let’s take the discussion back to AMD. The above-attached chart indicates that there has been a sharp reduction in AMD’s short interest over the last few months, and the metric just created another all-time low. In fact, over the past 12 months alone, there has been a net reduction of 75 million shares and the metric has been reduced to about half over the period. This indicates a dramatic turnaround in market sentiment relating to AMD stock, and that market participants have rapidly grown bullish about the chipmaker.

Screen Shot 2016-07-21 at 5.15.12 PM

(Source: YCharts)

More to the point, liquidity in the company’s stock has pretty much been consistent over the period. The days required to cover all short positions currently open, as per the average trading volume in FINRA’s last reporting cycle, has declined to just 2.7 days as a result. This figure used to be around 16 days a few months ago. This discrepancy indicates that the drop in AMD’s short interest isn’t due to a loss of market interest, but rather due to the growing bullishness about the chipmaker amongst investing and trading communities.

This begs the questions: Why is the short interest dropping, and what does it mean for AMD shareholders?

Making sense of the data

One of the key catalysts driving this major short covering is that AMD has recently launched its new line of eagerly-awaited Polaris GPUs. Recent benchmarks reveal that Polaris has been giving Nvidia’s Pascal GPUs a tough fight in terms of performance-per-dollar metrics. AMD was once considered a lost case, and now it’s budget offerings are giving the industry leader, Nvidia, a run for its money. This has been an encouraging sign for technology enthusiasts and investors, which has been fuelling the AMD-related bullishness in turn.

Sales performance of the new GPUs won’t be visible in Q2 results as the cards were launched very recently. But we can see full-fledged sales contribution of these cards rolling into AMD’s financials starting from the next quarter. Analysts are optimistic that Polaris GPUs will fuel AMD’s growth in the second half of 2016.

There were also speculative reports suggesting that Nvidia Pascal may be limited due to yield issues as its high-end cards were “out of stock” on major retail channels. The chipmaker later confirmed that it isn’t facing any yield issues, which leads me to believe that the retailers were out of inventory due to an aggressive launch timeline.

Usually, when a chipmaker releases a product, it takes anywhere between 30-90 days to fill their distribution channels with inventory. But Nvidia’s Pascal was launched on May 27 and was scheduled to ship around June 10. So the yields may have been fine, but its distributors could have possibly been out of inventory. This essentially means that AMD would benefit sales-wise until Nvidia’s inventory issues get fixed. After all, consumers wanting to try DX12 cards won’t have any option but to buy AMD until then.

And lastly, AMD appears to be finally making some progress on the upcoming Zen chips. Sample specs of AMD’s next-gen CPU chips were leaked earlier this week. The chips boast a maximum clock speed of up to 3.2 GHz and are supposed to carry a 40% improvement in instructions per clock over the previous generation. These data points suggest that the company’s claim to deliver a 50% performance improvement over Kaveri APUs may not be unfounded after all. The chipmaker might as well give a tough fight to Intel in the CPU-segment over the next year.

What lies ahead for shareholders?

From the launch of Seattle chips to the successful release of Polaris GPUs, AMD seems to be making all the right moves lately. For a company that was expected to go bankrupt due to mismanagement of its resources and IP up until a few quarters ago, this has been a remarkable turnaround. The plummeting short interest numbers indicate that the market is bullish on AMD’s turnaround and its efforts are being appreciated. The plummeting short interest data suggests that the rally in AMD shares may not be over yet.

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Comments on this article and AMD stock

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The clock speed of 3.2Ghz boost on Zen is on the engineering sample (stepping A0). In normal CPU cycle, steppings increase frequency anywhere from 0.2 to 1Ghz as it is refined and optimized, usually releasing retail between A1 and C2.

I personally expect 3.5 or 3.6Ghz boost by release, conservatively.
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