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Emotion Trumps Reason for AMD Investors

NEW YORK ( TheStreet) -- In August 2013, as shares of Advanced Micro Devices (AMD - Get Report) traded around $3.80, I told you that the stock was a good short to $3.00. AMD investors disagreed. And it didn't take long for them to take their shots at me when the stock broke above $4 per share last month. But they've conveniently forgotten that the stock did reach $3.04 on Oct. 23, just 1% from my short target. But why let facts get in the way?

Nevertheless, this new enthusiasm was short-lived following the stock's recent dip to $3.29 last week. And despite more talk about how AMD is going to "take the gaming world by storm," AMD's management has given me no reason to change my sentiment.

I will grant that the company has become more vocal about its direction. It's also encouraging that management has released a new graphics chip called Mantle to counter Microsoft's (MSFT) DirectX, which has become a respected standard in the gaming world. But it seems AMD has been in this "perpetual PC exit" for over a year. At this point, I remain unconvinced that management can execute any strategy aimed at transitioning the company into the gaming the world.

With revenue jumping 38% year-over-year and 9% sequentially (besting Street estimates), AMD posted impressive fourth-quarter results. There's no debating this. It's also important for investors to understand the depths from which this company has emerged. It's true that GAAP earnings almost doubled this quarter. But that's also because the company absorbed almost a half-billion loss in the year-ago quarter.

What's more, even when looking at things on a non-GAAP basis, which produced 6 cents in earnings-per-share, there are "shoulder-shrugging" reasons. It's true the company did beat Street estimates by 1 or 2 cents, depending on which estimates you follow, let's not forget that AMD benefited greatly from a $48 million legal settlement. On an organic basis, there was very little about which to get excited.

I believe management understands this, which is why the company offered downbeat guidance for the current quarter. The company expects revenues to decline anywhere between 13% and 19% from the recent 38% jump. Analysts were expecting first-quarter revenue of $1.36 billion. But guidance suggests a low-range of $1.33 billion.

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