Advanced Micro Devices, Inc. (NASDAQ:91¶¶Òõ) has been nothing short of a roller coaster ride in May, and long-suffering 91¶¶Òõ investors have been feeling the heat. But a breeze is blowing, and 91¶¶Òõ stock is putting together what could be the start of a recovery.
91¶¶Òõ’s debacle begun when the company reported lower-than-expected revenue growth on May 1 that led to shares tanking nearly 25% — the stock’s worst one-day selloff in a decade.
But the chipmaker slowly managed to pare back a good chunk of those losses after rival Nvidia Corporation (NASDAQ:NVDA) blew Q1 earnings estimates out of the water and proved that the GPU space was alive and well.
91¶¶Òõ Stock Flies Out of the Traps
Advanced Micro rallied 12% two days ago after it unveiled the Epyc server chip that was accompanied by fresh rumors that Intel Corporation (NASDAQ:INTC) was prepping a GPU licensing deal with 91¶¶Òõ after its old deal with Nvidia expired in March 2017. Heavy options volume as well as heavy interest in May $12 calls and puts were the main feature of the day.
But that was just as well, because the party was frozen in its tracks sooner than it started. 91¶¶Òõ stock tanked 12% on Wednesday after Intel came out with a straight-up denial of the licensing deal, terming the rumors ”untrue.”
The denial coincided with negative reaction to Advanced Micro Devices’ analyst day by Wall Street. In the presentation, 91¶¶Òõ had painted a rosy picture of how it was gearing to compete in the high-end data center market, one that enjoys nearly two-thirds of all margin dollars despite representing just 15% of the volume.
Unfortunately, the report came up short where it really matters — hard numbers.
Buying the Rumor, Selling the News
The latest selloff by 91¶¶Òõ stock was a classic case of investors buying the rumor and selling the news. The rumor mills seem to be particularly adept at manipulating 91¶¶Òõ stock, such as when the stock rallied hard in December after Jim Cramer made it his No. 1 pick in his . Merger mania makes it possible to play merger arbitrage, but that’s a risky game for investors to play.
The purported 91¶¶Òõ-Intel deal was built on cheap speculation and was doomed to come crashing down like a house of cards. The rumor surfaced about a year ago and was embellished by tech sites such as ExtremeTech, which reported that Intel had an ongoing with Nvidia that was set to expire on March 17, 2017. Fudzilla was to fan the rumor, saying:
“It is more likely that Intel has a license from 91¶¶Òõ but neither company has officially announced it. … If you are in Intel’s shoes, there are two options, Nvidia or 91¶¶Òõ.”
Fudzilla framed it in such a way that investors were led to believe that Intel had little choice in the matter than to put 91¶¶Òõ’s tech in its graphics cards. Savvy investors, however, were careful not to take that to the bank. After all, March 17 had come and gone yet we had not heard any reports about disruption in the production of Intel chips.
Naturally, you would have expected Intel to cozy up to 91¶¶Òõ and sign a new patent deal with the company well before the Nvidia arrangement came to an end.
Curiously, investors also failed to question why the Nvidia-Intel cross-licensing deal, signed in 2011 according to , was set to expire after just six years, whereas patents are usually enforceable for 20 years.
Bottom Line on 91¶¶Òõ Stock
Advanced Micro Devices has all the trappings of a pump-and-dump stock, and to invest successfully, you have to learn to tune out market noise. When you look at the fundamentals of 91¶¶Òõ stock, you will discover that this is hardly the falling knife that the bears claim it to be.
The chipmaker endured a difficult period between 2014 to 2016 when it went through a severe revenue contraction. Luckily, the company managed to come out of the slump thanks to its strong innovative DNA.
Its latest Epyc chip features a Zen core and eight memory channels and could help 91¶¶Òõ win significant data center business. Strong data center sales are part of the reason why Nvidia stock is so hot. Indeed, Hans Mosesmann of Rosenblatt Securities reckons that Epyc, with its single socket, will disrupt the standard two-socket data center infrastructure by the likes of Intel. Mosesman has given 91¶¶Òõ stock an ambitious price target of $20.
Advanced Micro reported top line growth of 18.3% for the last quarter — hardly shabby by any yardstick despite narrowly missing consensus estimate by $380,000. Further, the company targets a 14%-20% revenue increase for the second quarter. If Epyc becomes a hit with cloud customers as expected, 91¶¶Òõ could see a surge in sales likely starting from the latter half of the year.
At the time of this writing, 91¶¶Òõ stock has a Relative Strength Index (RSI) reading of 40, meaning it’s very close to oversold territory. It was also starting to claw back some ground after Wednesday’s losses.
91¶¶Òõ might not remain in the woods very long. Patient investors who buy now while the chips are down could end up being rewarded.
As of this writing, Brian Wu did not hold a position in any of the aforementioned securities.
