For a company whose sales grew 20% year-over-year in its latest quarterly report, Advanced Micro Devices, Inc. (NASDAQ:AMD) is going nowhere fast. Gaming, crypto-currency mining and the promise of cloud sales propelled AMD stock from a 2016 low of under $2 per share to its current price of around $13 per share.
But the stock has stalled out, and there are many theories as to why. As InvestorPlace contributor Lucas Hahn notes, the company lacks profits. James Brumley notes that many analysts are growing bearish. Meanwhile, Luke Lango simply calls Advanced Micro Devices maxed out.
All this may be true. I have noted in the past there seems to be too much hype around AMD stock and I suggested in April there was more risk than reward in it. Since I wrote that last piece, the shares are down 10%.
But all guesses on the reasons for Advanced Micro Devices’ gyrations are wrong.
The Real Story Behind AMD Stock
The main reason for the current selling pressure on AMD stock is the state-owned Mubadala Investment fund of Abu Dhabi.
The fund has dumped big blocks of shares twice this year. It had been the largest shareholder of the company, a stake going back all the way back to 2007. Its most recent sell-off represented 3.9% of AMD’s entire float, a 40 million share block that should, when you look at Advanced Micro Devices’ own reports, make it the second-largest holder, on a level consistent with the mutual fund companies that hold it passively for their U.S. investors.
That, however, is not your all-clear signal. Mubadala also owns 75 million warrants to buy more shares, which along with its remaining 57 million share stake means it’s still the largest owner, by a wide margin.
When it first bought into the company in 2007, AMD was strapped for cash after buying Canadian graphics company ATI, and the shares were about to fall off a cliff, losing half their value over the next six months.
Mubadala spent $750 million on the original stake, and Reuters has calculated it took in about $1.1 billion on the two share sales it made this year, while continuing to hold a stake that, according to my own calculations and Reuters’ figures, should be worth another $1.7 billion.
Mudabala has been patient, and it has earned its profit, but it apparently needs to get out now. That’s what I call selling pressure.