Advanced Micro Devices, Inc. (NASDAQ:AMD) stock couldn’t have a more dramatic journey. It was up by over 50% in one trading session, and down by double-digits in the next. Can AMD stock maintain this kind of price level?
More Upside in AMD Stock?
Well, first off, Friday’s surge was a big surprise. The company reported earnings after the closing bell on Thursday, and the upward momentum just couldn’t be stopped. AMD stock closed up 52.3% higher on Friday, marking its largest single-day gain since the company went public back in 1979.
Were the earnings good? Yes and no. The company is still not profitable, but its loss was narrower than before and also better than analysts’ estimates. In the first quarter of 2016, AMD had a loss of nine cents per share. Revenue actually declined 19.2% year-over-year to $832.0 million for the quarter, but was still better than Wall Street’s expectation of $819.1 million. (Source: “AMD Reports 2016 First Quarter Results,” Advanced Micro Devices, Inc., April 21, 2016.)
Earnings only reflect what the company has done in the past. It’s the future that investors really care about. And on that front, AMD has good news.
The company has formed a joint venture with Tianjin Haiguang Advanced Technology Investment Co. (THATIC). AMD recently signed an agreement to license its processor and system-on-a-chip (SoC) technology to the joint venture, helping to create server chips tailored to the Chinese market.
Under the deal, AMD will receive $239 million in licensing fees and royalty from products sold by the joint venture. Investors liked the news because the deal would not only bring more business to the company, but also help AMD compete with Intel Corporation (NASDAQ:INTC) in China.
AMD also issued a cheerful guidance. For the second quarter of 2016, the company expects a sequential revenue increase of 15%, plus or minus three percent. This implies a revenue range of $931.8 million to $981.8 million, which is well above Wall Street’s forecast of $890.8 million.
Short squeeze might have been another catalyst behind AMD stock’s surge on Friday. Since the company has long been a second-place finisher in many of its segments, it was a short seller favorite. By the end of March, there were over 110 million AMD shares sold short. Given the average daily volume at the time, it would take eight days for all the short sellers to cover their positions. (Source: “Advanced Micro Devices, Inc. Short Interest,” NASDAQ, last accessed April 25, 2016.)
So when AMD stock spiked on the news, short sellers got worried and ran to cover their positions. The short squeeze in AMD shares may have contributed to the stock’s gain on Friday.
Analysts have started turning bullish after the company’s earnings report. Christian Schwab, analyst at Craig-Hallum Capital Group LLC, upgraded AMD stock to a “Buy” rating and raised his price target from $3.00 to $6.00. That would represent another 73.9% upside from today’s price. (Source: “AMD Soars 52%: They’ve Got Traction, Says Graid-Hallum; Best Server Challenge to Intel?” Barron’s, April 22, 2016.)
The analyst said that the company’s earnings report “shows AMD’s turnaround is getting traction.” In particular, Schwab is “most excited about the company’s return to the datacenter market with a new x86 server chip based on its ‘Zen’ core architecture.” (Source: Ibid.)
In 2016, the analyst forecasts that AMD could make $4.0 billion in revenue and losing just $0.36 per share.
The Bottom Line on AMD Stock
When a stock goes up by these kinds of numbers, it could experience some pullbacks down the road. But given the company’s improved outlook, AMD stock could still see further gains in 2016.