AMD Short Interest At 5-Year Low
Summary
- More than 10 million shares short were covered in May.
- Number of bearish bets down more than 71% from high.
- Shares looking to hit new high.
It has been three months since I covered how short interest in chipmaker Advanced Micro Devices (NASDAQ:AMD) came down a bit in the second half of February. Investors have certainly come a long way on this name from when it traded below $2 a share back in 2015, but it took a while for the number of bets against the name to top out in 2018. Recently, global markets have rallied back from their coronavirus lows, and the latest update on short interest for AMD shows a new 5-year low.
It was just over two years ago when more than 192.6 million shares were short this stock. It was late last year when this number got back under 100 million shares for the first time in nearly three years. After a small tick-up in short interest through the middle of April as markets were under pressure, we've seen the downward trend continue again as seen in the chart below.
(Source: NASDAQ AMD short interest page)
I didn't cover the prior two NASDAQ updates because they didn't really change things in a big way. However, the back half of May saw a decline of more than 6.5 million shares, putting total short interest at 55.2 million shares. If you think about "handles" in the terms of tens of millions, this is the first time we've seen a 5 handle since I started tracking this key metric for AMD. Since my last update on short interest, I had to change the y-axis on the chart to get below the 60 million level.
Two years ago, we were talking about the bitcoin bubble. Since then, AMD's first quarter GAAP profit has doubled. Back then, AMD had a net debt position of $343 million. While there has been a bit of dilution since, the company has greatly improved its balance sheet. Most debt is now gone, and AMD finished Q1 2020 with a net cash balance of $897 million. That gives it a lot more financial flexibility moving forward, allowing for future investments in growth. With the stock also much higher, there is certainly the potential for any needed future capital raises to be much less painful.
We do have two competing forces going here. On one hand, trillions in global stimulus and money printing is propping up markets again. The NASDAQ index jumped over 13% during that three update timeline where AMD short sellers covered more than 15.3 million shares. Investors seem a bit afraid to place negative bets with so much firepower from the Fed and others out there.
On the other hand, you have to look at the impact of the coronavirus. At its most recent earnings report, AMD took down its yearly revenue guidance growth forecast. While that might not be a surprise, it still takes a bite out of the growth story. As I detailed in that article, AMD also continued its pattern of not guiding current quarter revenues above street estimates for the 8th quarter in a row.
(Data sourced from AMD earnings reports and Yahoo! Finance AMD analyst estimates page)
Interestingly enough, AMD shares had actually been a weak spot in the sector until Tuesday's roughly 6.5% jump. Over the past month, the stock had only risen 2%, compared to a 7.6% rise in competitor Intel (INTC), as well as mid double-digit gains for Nvidia (NVDA) and the iShares PHLX Semiconductor ETF (SOXX). Tuesday's rise for AMD also got the stock nicely above its 50-day moving average, a key technical trend line the stock seemingly wanted to break below. Had that happened, I think shares could have traded down to $48 or so before finding some support.
One item to watch moving forward will be what happens in the PC space. Bloomberg has reported that Apple (AAPL) will finally make its move off of Intel chips for its Mac launches in 2021. As the article details, Apple has moved off Intel as the chip giant's performance has slowed. This also brings up the possibility of other PC makers dumping Intel, which potentially could bring some added market share to AMD in the future if things go right.
So, what's next for AMD? Well, the next big thing in my opinion will be the Q2 earnings report in July. Investors will be looking for signs of improvement after the coronavirus panic and are hoping that AMD can raise guidance. Currently, the street is slightly below AMD's 2020 yearly revenue growth guidance midpoint of 25%. We'll see if management is able to raise its forecast back towards the original growth range of 28%-30%, or if we get another reduction. I'll personally be watching to see if AMD can eliminate its streak of disappointing quarterly guidance.
In the end, AMD short interest declined by another 6.5 million shares in the second half of May. While that 10.6% dip might not seem like much, it puts the number of bearish bets under 60 million for the first time in five years. AMD has come a long way over that time, getting its revenues growing nicely and having GAAP profits lead to a much better balance sheet. Now, investors are focusing on the post-coronavirus panic rebound, so we'll see if management can provide a positive feeling at next month's report.
This article was written by
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Comments (25)
New NVIDIA DGX A100 will use 2nd Generation AMD EPYC Processor. That is a great news for AMD shareholders. 🎉🎊🍭🎈🍷
I has been a short squeeze after another.
for about a year (of wild ride).
Hope to have steady stock price for AMD.
