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Why Advanced Micro Devices Selloff Is a Great Buying Opportunity

NEW YORK (TheStreet) – Shares of Advanced Micro Devices (AMD - Get Report) have taken a sharp downward turn, falling more than 18% following the release of the company's second-quarter financial results.

Prior to the announcement, Advanced Micro stock, which has soared 24% in three months, had been a relative outperformed. This compares to 4% and 5% gains for chip stocks like Nvidia (NVDA) and Texas Instruments (TXN), respectively.

From Thursday's closing price of $4.57, Advanced Micro shares are up 18% on the year to date. Those gains, however, have evaporated quickly. The stock closed Friday at $3.83, down 16%. This is nothing more than a gross overreaction to numbers that were -- in my opinion -- actually better than expected.

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By ignoring the 24% year-over-year jump in revenue and that management reversed last year's nine-cent loss to a two-cent profit, investors demonstrated their lack of understanding of what the company is actually working to achieve. That the stock is now declining opens the door for new investors to capitalize on possibly the quickest 18% bounce they'll ever see.

Advanced Micro has a new direction. CEO Rory Read is working to transition the company away from being a pure-play PC shop to a strong player in video game chip technology, among other areas.

This move makes perfect sense given that processor revenue just fell 20%. But due to Advanced Micro's efficiency improvements, that segment still posted a profit. No one saw that coming, especially since the entire chip industry has struggled with low average selling price.

But with better-than-expected results just released from Intel (INTC) things are getting better. Not only does Intel project chip prices and volumes to rebound, but Intel has raised both its third-quarter and full-year margin outlook, suggesting there is still money to be made in this industry.

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