If there’s one thing I’m constantly telling investors, it’s to be patient and to be picky. Take Advanced Micro Devices (NASDAQ:AMD) stock as an example: there are pros and cons to taking a long position right now, and it’s not a question of whether it’s a good company, but whether the overall picture for AMD stock is favorable at the moment.
In the past three months, AMD stock has eked out a measly 1.8% gain while the iShares PHLX Semiconductor ETF (NASDAQ:SOXX) has gained more than 14%. Advanced Micro Devices stock is the #13 holding in the exchange-traded fund’s 31-stock portfolio.
After weighing the positives and the negatives, I’m still not convinced that investors should jump into Advanced Micro Devices stock today. Lower share prices might convince me otherwise, but for now, my patient-and-picky policy won’t permit me to make a move.
AMD Stock Sunk by Earnings Disappointment
July 31 was, you may recall, not the most encouraging day for owners of AMD stock. With the release of the company’s second-quarter earnings report, the Advanced Micro Devices stock price coughed up 4% in after-hours trading, extending this loss to almost 8% at one point during the following day’s trading session.
What would cause investors to lose faith in AMD so quickly? The adjusted EPS was in line with analyst expectations at 8 cents, so ostensibly that wasn’t the issue. No, it was the decline in revenue that sank the Advanced Micro Devices stock price, as it was revealed that AMD’s year-over-year revenue declined 13%; graphics sales, an integral component of the chipmaker’s business model, were particularly weak in the second quarter.
To make matters worse, AMD’s enterprise, embedded, and semi-custom segment suffered a 12% year-over-year decline in revenues, with semi-custom sales being the main issue. On top of all that, the company announced that it was slashing forward guidance for the remainder of the year; whereas AMD had previously expected revenues to increase in the high single digits through 2019, now they were only expecting revenue growth in the mid single digits.
Analysts and Insiders Cast Doubt on Advanced Micro Devices Stock
Perhaps the experts in the financial markets can shed some light on the short-term future of Advanced Micro Devices stock — and based on their price targets, the outlook is a bit murky. Among a pool of 35 prominent analysts, their average price objective for AMD stock is just $32.04, which doesn’t imply much upside.
Moreover, as fellow InvestorPlace contributor Will Ashworth has reported, AMD stock has seen no recent insider buying; this is extremely discouraging, as the people closest to the company itself are privy to important data, and if they’re not buying, it makes me wonder whether anyone else ought to be buying.
Yet, it’s not just the lack of insider buying that bothers me; the magnitude of insider selling is just as worrisome. Among AMD insiders, 1.66 million shares have been dumped over the past three months; over the past year, they’ve unloaded an astounding 39 million-plus AMD shares.
Perhaps most tellingly, AMD president and CEO Lisa Su dumped 128,500 shares of her own company stock in a massive $3.9 million transaction. Even among well-heeled corporate executives, that’s a heck of a lot of shares — and not exactly what I would call an endorsement of AMD stock as an investment. Neither is the move by SVP Forrest Eugene Norrod who shed 50,000 shares in late July.
Even beyond the insider clique at AMD, sophisticated investors have been divesting themselves of Advanced Micro Devices shares at an alarming rate. To give you just a few recent examples, First Republic Investment Management Inc. sold 17,675 shares and Canada Pension Plan Investment Board sold off 141,200 shares of AMD stock.
The Takeaway on AMD Stock
I don’t want to give you the wrong impression: I still like Advanced Micro Devices as a company and might be persuaded to endorse a long position on AMD stock shares in the future. For the moment, though, I’m waiting for lower prices and, most importantly, a brighter outlook for this chip-market contender.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.