Back in late August, I detailed how short interest in chipmaker Advanced Micro Devices (AMD) had recently jumped. While there were a variety of theories at the time as to why the number of bets against the stock jumped, I wondered if it was just a one-time thing. Unfortunately, that large move repeated again into September's end, making me wonder if the street thinks AMD is headed lower into the end of 2019.
Short interest in the name was rather stagnant for a number of months before we saw that big jump in the first half of August. While over 10 million shares were then covered in the next two bi-monthly updates, reversing almost half of the original pop, short interest jumped again considerably in the second half of September. The chart below shows a history of this key indicator going back to the middle of 2015.
(Source: NASDAQ AMD short interest page. Last data point on chart is for settlement date of 9/30/19.)
The final two weeks of September saw a rise in short interest of more than 26.5 million shares, the second largest jump I have in my tracking period, and the largest one since July 2015. With almost 153 million shares short at the end of last month, which also was the end of the quarter, short interest is now at its highest point in 14 months.
Now, there wasn't a ton of news regarding AMD that could have caused such a large rise, other than maybe the report that the company was delaying the launch of its 3950X Ryzen processor. This led to a small decline in shares, and we did see the technology sector take a small hit into the end of September. However, we didn't see similar moves in short interest for names like Intel (INTC) or Nvidia (NVDA), which makes this look like an AMD specific thing.
In early October, we actually did see some good news come out, with AMD securing a spot in one the latest versions of Microsoft's (MSFT) Surface laptops. While this isn't likely to generate a ton of revenue in the short term, further moves for Microsoft away from Intel could start to add up over time. AMD is already stealing share in the data center away from Intel, and if it can start becoming more of a force elsewhere, there's a lot of room for revenue growth. We'll see in a couple of weeks if this Microsoft win had any impact on short interest, with the next NASDAQ update coming on October 24th.
As a reminder, expectations for AMD are very high going into the end of this year and into 2020. While the name is only expected to see mid single-digit revenue growth for the year, in percentage terms, you have to remember that there were significant revenue declines reported in the first half of this year. The street currently expects more than 51% revenue growth in Q4, which is expected to be followed by almost 25% year-over-year revenue growth next year. Non-GAAP earnings per share are forecast to increase at an even faster rate in percentage terms.
The markets have been rallying the past couple of days on hopes that the US and China trade talks this week will bear fruit. The semiconductor space has been one of the most impacted by this news, and a trade deal this week would likely be positive for AMD shares. As the chart below shows, shares currently sit about halfway between the 50 and 200-day moving averages, so they are looking to break above or below one of these key trend lines. Perhaps, that could come at the Q3 earnings report, which has not been scheduled yet.
(Source: Yahoo Finance)
In the end, we saw another large jump in short interest for Advanced Micro Devices in the back half of September. This was the largest jump in more than four years, and it put the number of bearish bets at a 14-month high. Perhaps, some investors believe that growth expectations are just too high for the chipmaker, or that a China trade deal will not come anytime soon. With shares currently sandwiched between two trend lines, a breakout above or below one of them will likely set up the next longer term move.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Investors are always reminded that before making any investment, you should do your own proper due diligence on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial adviser before making any investment decisions. Any material in this article should be considered general information, and not relied on as a formal investment recommendation.