What To Do With AMD Following Massive Rally

Chris Lau, KAPITALL: Over the past month, shares of Advanced Micro Devices (AMD) are up 54.5% on convincingly above-average volume. Trading volume was approximately five-fold higher than the daily average. With no news big releases recently, investors are left speculating on why shares advanced so rapidly and so quickly.  [Chris Lau called it:  2 Tech Stocks Under $3 to Watch After Markets Free Fall ]  

Reasons for Rally

Some of the possible reasons for the rally include:

1.     Short-covering. Short float is around 14.3%, according to finviz.

2.     Bullishness was delayed following AMD’s design win as a chip supplier for next-generation Sony (SNE) console

Analysts weighed in on the rally. Wells Fargo cited stable product pricing for AMD’s processor and the launch of two high-end processors. The bank has an outperform rating on the company.

$1,000 Video Card

In the graphics segment, AMD has a Radeon HD 7990 that costs around $1,000. A recent review on the product notes that the card, in cross fire mode, performed better than its rival’s card, the NVIDIA (NVDA) GTX 690. The good performance comes with a cost: power consumption is 100 watts higher than the GTX 690.

The card comes with popular games like Bioshock Infinite, made by Take-Two (TTWO). IT also includes games made by Electronic Arts (EA), including Crysis 3 and Battlefield 3. In the last three months, shares are up:

After considering product price against 8 games bundled with the card, reviewers could not recommend the card.

Performance

Even after the recent rally, AMD shares are underperforming its competitors. AMD is down 52% in the last year. Intel is down 14% over the one year period, too, but NVIDIA is up 6%:

Other Thoughts: Executive Changes

AMD re-hired an Apple director of graphics architecture, while Nvidia’s Tegra division boss, Phil Carmack   left. In its quarterly report, the company forecast Tegra sales would be flat, despite sales in mobile devices still rising. This suggests that NVIDIA is facing stiff competition from Qualcomm (QCOM). To enhance shareholder value, NVIDIA said it would return a billion dollars to its shareholders, with $800 million from buybacks.

Intel named a successor to Paul Otellini. The company decided to promote internally, naming its current COO as the next CEO.

Conclusion

Speculators who bought AMD might take some profits if share pull back, but the transition story for AMD is intact. The market is forecasting a clearer outlook for AMD as the chip maker expands its business to areas outside of the desktop market.

Written by Chris Lau

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