No one remembers second-place finishers. Sadly, the same thing can be said for the stock market. Number two competitors like Advanced Micro Devices, Inc. (NASDAQ:AMD) don’t always get the credit they deserve. Recently, however, AMD stock started surging. And judging by what happened, it might be a reversal.
AMD Stock: Short Squeeze Could Lead to Big Returns
You see, by not being the leader in its industry, AMD stock has become a short seller favorite. In less than 12 months, the short percentage of float climbed from less than 15% to 20.9%. By the second week of February 2016, more than 132 million AMD shares were sold short. (Source: “AMD Short Interest,” NASDAQ, last accessed March 3, 2016.)
Note that while short interest surged during this period, average daily volume actually declined. This means days to cover has gotten quite a bit longer.
Days to cover represents the number of days it would take for all short sellers to cover their positions. Back in March 2015, it would take 7.69 days. Now, it would take more than 13 days for all AMD stock short sellers to cover their positions.
Longer days to cover suggest that short covering is becoming more difficult for AMD stock. Note that short sellers would eventually have to buy back the shares they shorted. If good news comes out and sentiment starts to change, the short squeeze could be pronounced.
In fact, that might be what’s happening right now. Since entering March, AMD stock has surged nearly 15%. Why? The company released two new products that could boost the chipmaker’s competitiveness.
AMD announced two new additions to its desktop processor lineup—AMD “A10-7890K” and AMD “Athlon X4 880K.” They are quite special. (Source: “AMD Enhances Its Desktop Processor Line Up With New A10-7890K and AthlonX4 880K Processors, Delivering Superior Performance, Features, and Near-Silent Operation,” Advanced Micro Devices, Inc., March 1, 2016.)
Both of these chips are super fast and would be ideal for gaming. In fact, the new AMD A10-7890K is the fastest AMD desktop accelerated processing unit (APU) ever released.
While delivering high performance, the new processors are also more energy-efficient and can run almost silently. They might be able to help the company stand up to industry leader Intel Corporation (NASDAQ:INTC).
The Bottom Line on AMD Stock
Of course, while the announcement cheered up investors, the new chips are yet to make their way into consumers’ computers. In order for AMD stock to really soar again, the company needs to show how these new products are translating into sales and profits.