Chart of the Day – $AMD: Chip Shots Off the Green

by Dan July 18, 2014 12:16 pm • Commentary

Last night AMD reported Q2 guidance that was worse than expected, and guided down the current quarter.  The shares are down 18%.  This price action is fairly dramatic in its own right, but even more so when compared to INTC’s better than expected results and guidance and the stock’s subsequent 8% gains to new 10 year highs.  AMD is a pimple on INTC’s ass, with only about 10% of INTC’s expected 2014 sales of about $55 billion, but this little $3 billion market cap company has been known to disrupt INTC’s near PC chip monopoly from time to time, which is  probably one of the only reasons anyone in the investment world even has them on their radar.

While today’s decline is sharp, it is by no means uncommon, and is part of a very similar pattern that the stock has displayed into and out of scheduled earnings events.  Back in early March (read here) I highlighted the recent history of the stock as it tends to rally into an earnings event, followed by a sharp gap on the event, followed by the next few months filling in that gap – wash, rinse, repeat.  Well, here we are with two reported quarters since then, and the pattern has continued (with the exception of Q1 this past April):

AMD 2yr chart from Bloomberg
AMD 2yr chart from Bloomberg

The stock seems to be nothing more than a “trading vehicle” at this point.  It’s a small-ish cap stock that traders/investors like to buy when it looks done, then gun it into an event where new market participants may have some enthusiasm.  The newbies are inclined to join the party in anticipation of the slightest bit if good news that could hint to a sustained recovery.  Unfortunately, that party never materializes.

The fact of the matter is this – AMD’s sales were down about 20% from their peak in 2011 to last year, which caused the company to swing to their first unprofitable year since the financial crisis.  That has corresponded with a fairly dramatic gross margin decline.  If last night’s outlook is any guide investors should not expect a recovery anytime soon.

The stock looks like dead money with a market cap of $2.9 billion, $950 in cash, and $2.2 billion in debt.  It is likely to enter back into distressed equity land in the next downturn.