News

AMD: The Growing Bubble

Summary

AMD reported sub-par earnings for Q4 2018.

Shares rallied significantly despite the meager results.

If current trajectory continues, the stock is likely headed for a cliff.

Investment Thesis

There was nothing in the latest AMD earnings report that justified the stock price much less a 26% subsequent rally.

This wouldn't be the first time the buyers got it wrong.

As can be seen in the above chart, the stock has been bid up unreasonably on multiple occasions only to dive subsequently. Latest spike was as recent as a few months ago.

The Results

AMD reported mostly in line for Q4 2018, but the all-important guidance for Q1 2019 missed badly. Not only the top-line guidance missed the estimates by over $200 million but also came in 12% lower QOQ and 24% lower YOY. That is very significant for a company with stratospheric valuations based on supposed "high growth".

Bulls point to a 9% expected yearly growth in 2019 as a positive sign, but that is not nearly enough to classify AMD as a high-growth company. In fact, growth rate is actually decreasing by 14%. That would normally spell disaster for a growth stock, but analysts and buyers are once again giving AMD a pass.

Quick Comparison

By comparison, Nvidia's revenue outlook for Q4 2019 represented a 15% QOQ decline and a 7% YOY decline. The stock sank 25% in the 2 days following the latest ER. The contrast is astounding.