AMD stock surged early on Monday, climbing by approximately 2% early despite an ultra-bearish analyst report from one firm. Unfortunately for the chip maker, the number of AMD stock bears is growing simply because its valuation has gotten so high, fueled not only by its own success but also by the overall outperformance of the Semiconductor sector.
AMD 3Q17 earnings due Tuesday
AMD 3Q17 earnings are set for release on Tuesday after closing bell, and consensus currently stands at earnings of 8 cents per share on $1.5 billion in sales, which is right around the midpoint of the company’s guidance. In last year’s third quarter, the chip maker reported earnings of 3 cents per share on an adjusted basis on $1.31 billion in revenue.
In a note dated Oct. 22, Deutsche Bank analyst Ross Seymore said he expects the AMD 3Q17 earnings results to be solid with solid guidance as the company ramps its new products and rides on positive seasonality in two of its main segments. He’s projecting Computing & Graphics revenues of $772 million, marking a 17% sequential increase and 51% of total sales. He pets Ent, Embedded & Semi Custom revenues at $754 million, a 34% increase quarter over quarter and 49% of total sales. He estimates AMD’s third-quarter non-GAAP gross margin at 34%, an expansion of 90 basis points quarter over quarter.
He estimates that MPU revenues rose 19% sequentially and GPU revenues increased 15%. He also said that share gains from Intel in MPUs are implied and pointed out that IDC picked up an 11% sequential increase in PC shipments and a 13% increase in ODM revenues for the third quarter, both of which he said are better than their seasonal averages and his expectations. Further, he said that game consoles have enjoyed positive seasonality.
For the fourth quarter, Seymore is estimating $1.31 billion in revenues with an 18% year-over-year increase in full-year revenues, which would put it toward the high end of the chip maker’s revenue guidance for growth of 15% to 19% year over year. He continues to rate AMD stock at Hold with a $12 price target, as he feels that his above-consensus estimates are already reflected in the share price.
However, not everyone is so positive on AMD stock going into tomorrow’s earnings release. According to CNBC, Citi analysts reiterated their Sell rating on AMD stock because they expect Intel’s Coffee Lake processors to make things more difficult for the up-and-coming chip maker. Intel is set to release its next earnings report on Thursday after closing bell.
Short-sellers target AMD stock
AMD stock has had a lot going for it over the last couple of years. This year cryptocurrency has been a big story for the chip maker, which is one reason some analysts are so bearish on it. Many see cryptocurrency mining as a passing fad, which would mean that it could never be a sustainable revenue stream.
AMD stock has also been riding along on the greater tide of the Semiconductor sector. Last week the PHLX Semiconductor Sector index ripped to a new all-time high, and the uptrend continued on Monday with about another 1% gain, bringing it as high as 1,242.88. According to data from financial analytics firm S3 Partners, the index is up 36% year to date as Semis continue to beat the market.
S3 director Brett Weiss said in a note on Friday that short-sellers have begun to increase their bets against Semis just recently. The firm pegs short-side dollars at risk at about $30 billion as short-sellers tacked $6.5 billion onto their positions year to date, although they’re down by about $8.2 billion in mark-to-market losses on those positions.
AMD stock was the fifth-biggest short in the sector on Friday when S3 Partners estimated short interest at about $2.125 billion, a 65.4% year-to-date increase in short interest. Short-sellers have lost about $194.3 million on their bets against AMD stock this year.
The day before AMD 3Q17 earnings are set for release, the company’s stock climbed by as much as 2.21% to $14.12 during regular trading hours.