AMD Shares Surge On Announcement of Chinese JV

AMD Shares Surge On Announcement of Chinese JV
April 26, 2016

The shares of chip maker Advanced Micro Devices, Inc. (NASDAQ:AMD) increased 52.29% to $3.99 on Friday. The main reason for such a steep rise in the share price is the announcement of a joint venture with a Chinese company and better than expected guidance for the second-quarter of fiscal 2016. However, a sharp rise in the share price calls for prudence. Is AMD a worthy investment? An assessment of its fundamentals should enable you to make an informed decision.

For the fiscal 2016 first-quarter, the company reported revenue of $832 million, down 19.2% from the similar period last year. AMD also reported a fiscal 2016 first-quarter net loss of $109 million or $0.14 per share. On an adjusted basis, the AMD’s first-quarter net loss widened to $96 million or $0.12 per share, from a net loss of $73 million or $0.09 per share in the corresponding period of 2015. The revenue estimate of analysts’ was $818.8 million, while the net loss estimate was $0.13 per share.

The company also stated that it has entered into a joint venture agreement with a Chinese firm (Tianjin Haiguang Advanced Technology Investment Co., Ltd. – THATIC) to license its processor and SoC technology. This would result in additional revenue of up to $293 million (including royalties for the sales of X86 chips) per year.

The company also provided its outlook for the second-quarter of fiscal 2016. AMD now expects a sequential increase in the revenue by 15% (+/- 3%). This indicates that the revenue would range between $931.8 million to $981.8 million. Currently, the second quarter revenue expectation of analysts is only $889.2 million. The company is also believed to be on course to introduce processors for gaming consoles of Nintendo, Sony and Microsoft. All these factors propelled the share price by more than 50% in two days.

However, most of the above announcements are yet to materialize. Six years back, Intel paid $1.25 billion to settle a lawsuit filed by AMD. However, AMD was unable to make even a cent as profit in the past four years. The company has lost $1.8 billion so far in the last five years. Similarly, it has lost almost $600 million in the past one year. Thus, the uptrend seen now factors in all the positive announcements and should be used only as an opportunity to exit the long position or go short.

The chart reveals that the first major hurdle for the stock exists at 4.30. The vertical price rise has also resulted in a technical gap between 2.60 and 3.18. The gap will be eventually covered, when the euphoria settles down. The stochastic reading of over 65 indicates that the price is near the overbought region. Thus, a trader can expect the price to decline after touching the resistance at 4.30.

AMD - Technical Analysis - 26th April 2016

Considering such a possibility, it is better for a binary options trader to purchase a one touch put options contract with a strike price of about $3.0 and expiry date in the last week of May. A trade taken as suggested will have higher chances of success.


Andrew Wright

Prior to founding in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.

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