The market continues to treat almost any stock with significant China exposure badly. As I explained in a recent article about Micron (NASDAQ:MU), you simply can’t invest in most of these stocks until the trade war concludes. This makes AMD (NASDAQ:AMD) stock all the more interesting. As one of the tiny number of semiconductor stocks still faring well, AMD has managed to overcome the broad negative sentiment.
As a result, a dramatic clash is setting up in coming weeks. AMD’s numerous and vocal critics haven’t given up. In fact, they’ve raised the stakes, adding to their positions that profit from the AMD stock price declining.
Yet the share price has held up and is near a key technical level. Despite the trade war and uncertainty around China, AMD could surprise traders and blast off to new highs.
Short Sellers Are Piling Into AMD Stock
For almost all of 2019, the short interest in AMD has been steady at just over 10% of the company’s outstanding stock. AMD has slightly more than 1 billion shares of outstanding stock, and short interest has been pegged right around 120 million shares since last December. Until now, that is.
The most recent short interest update showed AMD bears plowing back into AMD stock again. Now there are more than 136 million shares short; that’s a huge jump from the 113 million level we had seen in the prior report. Additionally, it’s the biggest jump in short interest since mid-2017.
Like then, AMD stock is now stuck at overhead resistance. It appears bears are desperately trying to keep AMD stock in check while hoping that the trade war negativity will cause owners to bail out of the stock.
If AMD stock is able to gain any traction to the upside, it will cause a technical breakout. Consider that AMD stock stalled out at $33 a share last fall. It dropped all the way back to the teens, but recovered its losses. On various occasions from June onward, AMD stock has hit $34, but each time has failed right at that level and gone back down to $30.
However, this narrow trading range over the past three months should be set to break soon. And with AMD holding up despite all the China concerns, the overhead resistance at $35 could soon give way. Push through that, and momentum should carry shares up to $40 or higher.
AMD Stock Has Solid Momentum
These increased bets against Advanced Micro Devices stock come at a dangerous time. For one thing, AMD is winning some some huge deals from major clients. Take Twitter (NYSE:TWTR), for example.
Twitter recently started using AMD’s Epyc 2 chips for its servers. AMD claims that these can have up to four times the performance compared to the same-priced solutions from Intel (NASDAQ:INTC). In Twitter’s case, they were happy to demonstrate at an AMD event earlier this month that Epyc has lowered their total cost of operations by 25%. AMD also got a huge contract win with Google (NASDAQ:GOOGL, NASDAQ:GOOG). That news briefly helped spike AMD stock to a new high before another round of trade war jitters helped knock the stock back off its peak.
AMD also appears to have scored a huge deal with Samsung. Samsung announced a partnership with AMD this summer for a multi-generational deal that includes more than just IP licensing. This strongly suggests that AMD is designing a chip for a wide array of Samsung phones in coming years. Given that Samsung has nearly a quarter of a the global smartphone market, this could be a gigantic and as of yet underappreciated source of growth for AMD in coming years.
Verdict on Advanced Micro Devices Stock
It’s possible that the short sellers will be rewarded with a big drop in AMD stock. I’m certainly not optimistic on the trade war ending this quarter, and AMD’s business will be affected as long as it carries on.
However, it’s extremely dangerous to short one of the strongest stocks in the semiconductor sector. AMD’s shares have held up during a trying time for the industry. It will take a lot to crack peoples’ resolve at this point. Meanwhile, if we do get some sort of positive news on China or more company-specific wins at AMD, the stock is set to launch.
To be clear, I don’t see AMD stock as a great long-term investment at this price. The company simply isn’t that profitable, and competition is extremely high in AMD’s main product lines. However, for a short-term trade, there’s a clear path to $40 AMD stock in the coming weeks and months.
At the time of this writing, Ian Bezek owned INTC stock. You can reach him on Twitter at @irbezek.
