AMD Short Interest Hits New High

Summary

• Nearly 182 million shares now short.
• Stock falls below $10 per share.
• Is this all cryptocurrency-related?

As the chart below shows, one of the market's biggest losers over the past six months is chip maker Advanced Micro Devices (NASDAQ:AMD). While the company has posted decent results, it appears that the Street isn't totally buying the recent business improvement. With some of this appearing to be due to the cryptocurrency burst, short interest recently hit a new high.

(Source: Seeking Alpha AMD quote page)

I mentioned back in January that short sellers were returning, sending the number of shares short back over 175 million. At that time, shares had recently jumped a few bucks, but we also had questions surrounding security flaws with Intel (INTC) chips. There was a bit of covering after earnings, but as you can see below, more bets are now being placed against the name than at any time period in the last roughly three years. In fact, short interest is up more than 63% in the past twelve months.

(Source: Nasdaq AMD short interest page; last data point on chart is for settlement date of 3/29/2018)

The turning point for short interest was the second half of 2016, primarily around the time AMD had a large equity/debt offering. It is possible that some of those shorting the stock are long the convertible bonds and thus this is a pair trade or hedge. However, the surge in short interest over the last year probably can't be explained by this, especially given AMD's continued turnaround and GAAP profits.

Yes, part of the reason AMD has not done well has to do with US markets falling a bit from their all-time highs on China trade war concerns. However, I do believe part of the problem is also the fall in cryptocurrencies, which was a key part of a recent negative analyst note that called for considerable downside in this stock. As the chart below shows, Bitcoin (BTC-USD) has come well off its highs. If Bitcoin was surging to new highs every day, like say being at $30,000 or more now, I'm sure AMD bulls would be celebrating how it would help chip sales.

(Source: cnbc.com)

Now I understand that only a small portion of AMD sales are due to bitcoin and other mining efforts. However, taking away even a couple of percent of revenue hurts the growth story, and it does trickle down to the bottom line. The good news is that AMD estimates continue to move higher, partly due to an accounting change detailed in the Q4 report. As the table below shows, analysts have continued to underestimate AMD's progress, with revenue and non-GAAP EPS forecasts always seeming to move higher throughout the year.

(Source: Yahoo! Finance analyst estimates page; data in yellow is actual)

Perhaps the Q1 earnings report will be the catalyst needed to chase these short sellers away. There are certainly plenty of non-believers, with almost 182 million shares now short. While the market fall hasn't helped, I think some of AMD's fall is due to the cryptocurrency bust. As the estimates link above shows, the average price target on the Street is more than $14 currently, representing more than 40% upside from current levels. I think that AMD is a decent long idea here, and continued strong results could lead to a very nice short squeeze in this stock.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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