As I correctly predicted, profit margins weren't going to be enough to support the recent rise in the stock price, especially with the server business on the decline as the company lacks competitive significance in mobile. Late as it was, this was what the Street finally realized after management guided margins for the new gaming consoles 50% below Street estimates, which sent the stock tumbling down.
I believe that investors interested in AMD should question management's aggressive growth strategy, which will come inevitably at the expense of better profit margins. While the third-quarter guidance was solid, which assumes 22% growth, absent better operating results, it's not going to matter. I can't see the recovery potential in a company that has now posted five consecutive quarters of negative cash flow.
While management does continue to speak positively about the company's second-half prospects, it's still beyond comprehension that the company insists on focusing portions of its business on a morbid PC industry. I have absolutely no faith that this is going to work out very well. Besides, even during the PC boom, AMD was fighting Intel and Nvidia (NVDA) for chip slots. Now both companies have passed AMD in mobile, the most important market at the moment.
AMD investors will get angry, and I'm prepared for the "You can't see the forest for the trees" arguments. But I need something more compelling than that to get me to believe in this story.Better yet, I need an explanation of where exactly AMD does fit into this market. AMD is a square peg and the market is a round hole. The business is not working in PCs, while it's losing share in servers. AMD can't play games well and it has no presence in mobile. If that is not a recipe for a short I don't know what is. With shares closing on Tuesday at $3.72, I'm predicting it reaches $3 by the end of the year. At the time of publication, the author held no position in any of the stocks mentioned. Follow @saintssense This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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