- Short interest in AMD has plunged drastically.
- It could be due to growing bullishness in the company.
- Expect further declines in AMD's short interest as the release dates of Polaris GPUs and Zen CPUs get closer.
Advanced Micro Devices, Inc. (NASDAQ:AMD) stock has been on a roll lately. Its shares have gained almost 51% over the past 2 months alone and there’s seemingly no stop to its rally. But will this upsurge last any longer? I believe that reflecting on the company’s short interest scenario would somewhat allow us to answer that question and it would also provide us insights about how traders and investors are placing their bets on AMD. Let’s take a closer look.
Short interest data
For those who are new to this term, short interest is basically the aggregate number of short positions that are currently open and are yet to be covered. The data is released by FINRA twice a month and it essentially highlights the market sentiment relating to the concerned stock. To put things in perspective, a sharp rise in short interest would mean that market participants have initiated new short positions and are now betting on the stock price to fall going forward. On the other hand, a sudden drop in short interest means that market participants have covered their short positions as they now think the stock price would either rise or consolidate. Therefore, it’s recommended to analyze short interest activity before initiating positions in any stock.
(Compiled by author, Source: NASDAQ)
With the brief introduction out of the way, let’s take a look at AMD’s short interest data presented in the chart above. Evidently there has been a drastic change in the metric very recently; traders and speculators have collectively covered a whopping 25 million shares over a period of just 15 days which represents a sharp 19% sequential decline. To further add perspective to this number, about 17% of the company’s entire floating stock currently stands shorted which is a sharp plunge from 21% during FINRA’s previous reporting cycle. Generally, this would mean that:
- Traders don’t think that there’s any near-term downside to AMD stock price.
- Selling was probably overdone.
- The market is rapidly growing bullish on AMD’s prospects.
- Positive announcements are expected ahead.
It’s also worth noting that the rapid short covering in AMD stock is occurring on decent volumes. The required days to cover all short positions at current levels of liquidity has actually declined to about 7.7 days. This suggests that a potential short squeeze is most likely not on the cards. However, it also highlights that there’s a healthy long-side market participation in the stock which is particularly encouraging for investors. This leads us to the big question: What lies ahead for AMD shareholders?
(Compiled by author, Source: NASDAQ)
Understanding price action
The sudden decline in AMD-specific short interested can be attributed to the fact that the company’s next-generation products are nearing their release dates. For starters, AMD is planning to announce:
- Polaris discrete GPU launch during June,
- Zen CPU launch for x86 consumers during Q4,
- ARM-based server CPUs (Seattle) launched in January,
- External Discrete GPU solutions sometime during 2016,
- Potential licensing deal with Intel for GPU technology,
There is a lot of optimism amongst technology enthusiasts and investors alike with the general expectation that the aforementioned announcements could solve AMD’s financial problems going forward. AMD has been struggling for so long that it won’t take much for the company to actually rebound financially. Any potential market share gains in CPU and GPU segments would trigger a major rally in AMD stock on hopes of those gains being sustainable going forward. Until its new products are demoed by benchmarks, or tarnished by delays, I completely expect this market optimism surrounding AMD stock to stay intact or further grow from here.
Another positive trigger is that AMD’s upcoming Polaris GPUs are reportedly far superior to NVIDIA (NASDAQ:NVDA) upcoming Pascal counterparts when it comes to virtual reality gaming. The segment may be small right now, but as the chart above illustrates, the market for VR gaming is expected to explode going forward. If the article linked above is correct and AMD truly has better VR-focussed GPUs lined up, the chipmaker could very well be the prime beneficiary in this rapidly growing market segment leaving Nvidia behind.
Putting it all together
Overall things are looking good for AMD. The upcoming products are looking very competitive, at least on paper, and they seemingly have the potential to solve the chipmaker’s financial woes for good. This is why I’m of the opinion that the drop in short interest is directly correlated to the increase in bullishness towards AMD stock. As we near closer to AMD’s product releases, we could see a further decline in AMD’s short interest and a subsequent increase in bullishness surrounding the stock. It’s a good time to buy AMD stock!