Advanced Micro Devices, Inc (NASDAQ:AMD) stock is in an uptrend going into the third quarter earnings.
Shares of semiconductor company Advanced Micro Devices, Inc (NASDAQ:AMD) are back in a bull rally. AMD stock had tumbled more than 18% in the fortnight after its earnings on July 26th. The stock had declined in spite of AMD reporting a beat on both, top line and the bottom line. Also, the management's Q3 guidance was significantly higher than analyst consensus. All this was not enough to prevent a sharp fall in the stock price. However, the stock has recovered most of its lost ground due to a turnaround in sentiment. AMD stock has been helped by several rumors along the way, including rumors about a deal to license graphics chip designs to Intel (NASDAQ:INTC) and supply a proprietary chip for future Tesla Inc (NASDAQ:TSLA) Model 3 electric cars.
AMD is gaining on Intel Corporation.
One of the biggest factors supporting AMD stock price is the perception that AMD has the potential to take market share away from Intel in both server and CPU market. According to mindfactory.de, a German retailer, AMD outperformed Intel, accounting for 54% of total CPU revenue in August 2017, and a 56% share of the market, on a volume basis. There is also a lot of hope from the EPYC server launched by AMD earlier this year. EPYC has received several favorable reviews from analysts as well as tech experts.
AMD’s Epyc doesn't outperform Intel in every metric or environment. But a combination of lower prices and competitive performance does make it an attractive option for cost-conscious hardware companies, or vendors. According to Joel Hruska of ExtremeTech, "This is the first time in at least six years that AMD has had a server part that could take the fight to Intel in any context."AMD expects to capture 10% of the server market from Intel in the next couple of years. The market for server datacenters could grow to $20 billion by 2018. So a 10% share means a $2 billion opportunity for Advanced Micro Devices, Inc. Given that, AMD's 2016 revenue came in at $4.27 billion, this will be a huge win.
GPU market share gain.
AMD is also making strong progress in the GPU segment. AMD's Vega GPUs are also enjoying a strong demand. The demand from crypto-currency miners has provided an extra boost to Vega GPUs. Supply of AMD's Vega GPUs has been very tight with most of the retailers. According to Susquehanna analyst Christopher Rolland, the Vega release allowed Advanced Micro Devices, Inc to make a 4% quarter-over-quarter GPU share gain. In addition, Vega has triggered an uptick in GPU average sales price, which was up as much as 25 percent in the quarter. Apple deal will also help AMD's GPU segment. AMD's new VEGA GPU will be included in Apple's iMac Pro.
AMD stock is in an uptrend.
AMD stock is currently in an uptrend. AMD stock has gained over 18% since the current uptrend started in early August. As you can see in the AMD stock technical chart, AMD stock has been making higher highs and higher lows since the uptrend started, which is a bullish signal. In the previous uptrend, which had lasted from early May till the second quarter earnings in late July, AMD stock had gained around 45%. After the second quarter earnings, AMD stock had corrected by around 18% before finding support from the 200-day moving average line. AMD stock has bounced back after testing the support line on several occasions in the last month. AMD stock will face resistance at $15 price level.
Shorts continue to bet against AMD stock.
While AMD's prospects have seen a drastic improvement with the recent launches, not everyone believes in the AMD story. In facts, shorts have been piling up on AMD stock. Short interest in AMD stock is at an all-time high. The number of AMD shares which are shorted rose to 160.53 million shares, from 158.1 million shares, a mild increase of 1.5%. The total dollars-at-risk is over $2 billion. These are all-time highs for AMD, both in terms of the number of shares short as well as the dollars-at-risk held by the shorts. As a percentage of float, short interest came in at 18.2%, with days to cover at 2 days. AMD stock is the second most shorted stock on NASDAQ in terms of the number of shares shorted.
Record high short interest could lead to a short squeeze if AMD stock sees a major upside move. A strong upside move in AMD stock could force shorts to cover their position, which could drive AMD stock even higher. One event which could result in a sharp movement in AMD stock is its Q3 earnings announcement next week. According to MKM Partners' analyst Jim Strugger, AMD could see a sharp move of as much as 10.5% after the earnings. However, investors must remember that this movement could be a gain or a loss. Hence it would not be wise to bet on AMD stock going into the Q3 earnings.
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