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Mar 24, 2017

S3 BLACKLIGHT: Record Short Interest in AMD as Ryzen Chip Malfunctions

Advanced Micro Devices Inc. (AMD US) announced today that its Ryzen Chip - competitor to Intel Corp’s (INTC US) Core i7 computer chip - is locking up computers while performing certain functions and that it is working on a fix for the bug. This is a major blow to AMD’s attempt to pry market share away from Intel’s dominant position in the PC market.

AMD is trading at $13.79 and is up 21.6% for the year after being up 295.12% in 2016. Analysts are considering this stock as overbought with an average full year target price of $11.50. Analysts have 11 buys, 15 holds and 3 sells for the security according to CNNMoney. If AMD’s stock price plateaus, or begins to decline, long shareholders may begin selling their positions to lock in the sizable unrealized gains they earned over the last year.

AMD short interest hit the $1 billion mark this January for the first time since October 2007, and has soared to $1.55 billion today, up 55% for the year. Short sellers have been very active since November 2016, as AMD’s stock price neared $10/share, with $900 million of new short sales increasing short interest levels by 141%. Short sellers are betting on at least a temporary pullback from stock price levels we haven’t seen since 2007 because of the potential impact to revenues from the Ryzen chip bug matter.

Conviction on the short side is very high as short interest continues to climb despite short sellers incurring $1.02 billion in net of financing mark to market losses in 2016-2017, for a negative return of 167.47%. We may be at a tipping point for AMD – if its stock price continues to increase, shorts may cut their losses and be squeezed out of their trades, but if AMD’s stock price begins to drop, we may see short interest explode as AMD slides down to the analysts’ target price of $11.50.

Want deeper insight into the above analysis?
Contact:  Ihor.Dusaniwsky@S3Partners.net
               Head of Research, S3 Partners
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