Rumors that Advanced Micro Devices (NASDAQ: AMD) would get bought out on March 7 proved not only wrong but pitiful. The chip maker, on a multi-year turnaround plan, is underperforming its counterparts in the short term. So a company of medium size may easily get manipulated by markets to both squeeze out shorts and give buyers a temporary entry point.
AMD rose by around 6% mid-day on March 7 as trading desks reacted to buyout rumors. March call options spiked at around the same time. The stock’s movements are clearly at the market’s mercy until chip sales add significantly to profits. For 2018, AMD will still need to build its market for the server and desktop market. AMD had over a year to develop a market for Ryzen. On the server side, EPYC will prove to add not only more to profits but will sharply lift AMD’s revenue. The market demand keeps going up for cloud storage, enterprise servers, and powerful computing needing plenty memory. AMD already counts Microsoft’s (NASDAQ: MSFT) Azure, HPE Enterprise (NYSE: HPE) and Baidu (NASDAQ: BIDU) as some of its customers.
Takeaway
AMD’s at the cross-road on the market: its forward P/E is a reasonable 22 times but revenue is not yet ramping up to the 50-60 percent annual growth. When it does, shorts will not have another chance to spread rumors to move AMD stock up and then down.
Tech Insider
