AMD Is Not A Buying Opportunity

| About: Advanced Micro (AMD)


AMD vs. Intel is being framed as a David and Goliath story, but it's everything but.

Blinded by the bright upside, AMD buyers have failed to think about the upside.

Now is the time for watching, not buying.

I hate reading all caps, so I hate using all caps. But imagine the following in all caps, for the sake of urgency:

I'm writing this report to urge all traders to quickly buy as much Advanced Micro Devices (NASDAQ:AMD) stock as you can afford! The stock has already risen 65% in the past month! This is your last chance before AMD overtakes Intel (NASDAQ:INTC) as the #1 CPU company!

It seems like the above statement is the only thing fueling the current rally… This is the part where I am supposed to say, "and with good reason!" But I cannot.

Momentary Speculation

Speculation about fallen angel AMD returning via its Ryzen chip, the Intel killer, is the only catalyst for AMD's stock at the moment. And it is merely speculation. The Ryzen chip, which looks good on paper, is an unproven product.

AMD reports earnings on Jan. 19. Do investors really think that Jan. 19 is to bring good news about the Ryzen chip? Will forward guidance on a product not yet on the market really push AMD to double its November valuation?

Am I the only one who sees AMD's recent rally as absurd? Am I the only one who sees the recent speculation to be 100% marketing fueled? Why are we all ignoring the elephant in the room? Why are we not addressing unreliability of the sources of the "leaks" on AMD's newest product?

I've seen this hundreds of times… in the penny stock market. But AMD is not a penny stock. It hasn't been a penny stock for an astoundingly long time: Six months and counting!

What Are Insiders Doing?

How many AMD stock buyers are hardware engineers? How many are tech CEOs willing to replace their own hardware with Zen CPUs? Why do I feel like those with the most valid opinions are not those with the loudest voices?

It's as if retail investors with internet access are playing virtual insider trader. Questionable "leaks" and what-looks-like-viral-marketing-but-is-definitely-not hype are getting retail investors on the AMD bandwagon. All while the true insiders sell:

The rally I'm looking at is not an insider-seeded rally. It's a hype-seeded rally. It's at the hands of the general public, who owns 25% of AMD. But it was until recently a penny stock, after all, meaning it was off the buying list for funds and institutions.

A Contrarian Play?

I call myself a contrarian, but I still share some beliefs with many mainstream investors. Investing on cold hard facts and not hype and emotions is one of them. Yet where are the cold hard facts that support AMD trading at 6x its future cash flow value?

Unlike most retail investors, I don't have a day job. So, I have all day to look for evidence. And while most of my articles here on Seeking Alpha are just data, this article is a bit of an anomaly: I fail to find any data that supports AMD's current rally.

Let's Be Optimistic

I mean, I'm trying to be open-minded here. I love comeback stories. But consider a few things before you trust the benchmarks that were posted last week:

They were posted on Chinese forums.

I'm fluent in Chinese.

I cannot locate the original post.

Through further research, I now find that the original post was deleted.

The original post was deleted because it was fake.

I think that should be enough to get us back to square one, which is waiting. The CPU won't be out until Q1 2017. This, to a company, means that they have until March 2017.

The Long Side Is Illogical

By Parkinson's law, which says work expands to fill time till completion, the chip won't be out until March at the earliest. So why buy the stock before a January earnings report? It makes zero sense to expose yourself to extra volatility in a stock that has almost doubled in one month under no fundamental or financial changes.

To put it bluntly: Buying AMD now is exposing yourself to a likely pullback. If you really believe in AMD's new chips, why not wait for them to at least hit the market? Why not at least wait for sales numbers?

Buying now is illogical. Buying now is a momentum trade, emphasis on "trade." It is not an investment.

David and Goliath

Investors in AMD are hoping for a David and Goliath story. But this is not 12-year-old-and-full-of-spunk David. This is an aged, balding David on his last few breaths. The risk/reward here doesn't justify placing your money on David.

Investors have been imagining what will happen after AMD "unleashes" Ryzen. But have they also thought about the opposite scenario? What happens if the chip isn't a hit?

This is my main concern for AMD buyers and why I'm writing the article. It's easy to get behind a hyped stock with a clear upside catalyst. But it's hard to admit that you're putting your money on a company with only one real shot in the near future.

AMD… the Next Google?

This is not Google (NASDAQ:GOOG) (NASDAQ:GOOGL) starting a social media company to compete with Facebook (NASDAQ:FB), failing, and walking away unscathed. This is more like MySpace trying to make a comeback at Facebook with a product that - really - has nothing going for it other than cost. A low-cost product has never been the saving grace of a company, no matter how you hype it.

I'm not saying to scratch AMD from your watchlist, but I am saying the current rally is unjustified. Buyer beware.


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Tagged: , Semiconductor - Broad Line
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