AMD Stock Predictions

Advanced Micro Devices, Inc. (AMD) announced their first quarter earnings report on April 16th, and missed estimates for revenue and EPS. To be honest, the earnings report was rather depressing, as it also projected that revenues for the current quarter would fall another 3%, plus or minus 3%, sequentially. With revenue falling 26% this quarter, there does not look like there is much to be optimistic about when considering this stock. The poor earnings report, along with unfavorable market conditions, has caused the stock price to fall precipitously in the last year. However, some comments made by CEO Lisa Su offer some hope that the company will eventually be able to turn things around.

Past Algorithmic Predictions Compared To Results

I Know First has published multiple algorithmic articles and analyses for AMD over the last year. One article was posted on October 23rd, 2014. This article had a bullish outlook, arguing that the stock price was undervalued and would eventually increase. As can be seen in the figure below, this took place, as the stock price climbed over 25%, reaching a peak at the beginning of February. I Know First later published a bearish article, arguing that investors had a great opportunity to short the stock. Since that article was published, the stock price has fallen over 11%. Taking into account the success of the algorithm’s prediction, along with fundamental analysis, before, lets take a look at the current situation.

AMD Transitioning To High End Competitor

AMD is currently trying to break away from its history of being a cheaper alternative to Intel Corp. (INTC), the world’s largest chipmaker. In order to do so, the executive team has decided to shift their business, as it made the decision to exit the dense server systems business. This business was formerly known as SeaMicro, which AMD bought in 2012 for $334 million, and the company took a $75 million hit for exiting this position in the first quarter.

The exit in the position hurt the company’s financials during the first quarter, and they are not likely to get much better during the next quarter, as Su acknowledged during the earnings call. However, the exit from the high-density server business allows the company to focus more of its assets of R&D, as the company shifts its priorities, according to Su, “to places where we can differentiate and innovate.”

These fields include the x86 market. During the prepared remarks, Su said, “We see very strong opportunities for next-generation high-performance x86 and ARM processors for the enterprise datacenter and infrastructure markets, and will continue to invest strongly in these areas.” By increasing the R&D to this market, Su and AMD are betting that it will be able to compete with Intel for the high end of the market with this product.

This change is necessary considering the fact that it has not been able to make up for the decrease in the PC market with sales in other fields, such as its semi-custom chips that are used in video game consoles. But AMD is going to struggle until this new product is made available to compete with Intel’s products. The earnings report will be poor for the next quarter, but the executive team took this into account when giving guidance for the upcoming quarter.

When Results Will Turn Around

There is also reason to believe that the second half of the year will better, as Windows is coming out with its new operating system, Windows 10. Demand for chips for video game consoles and GPUs also usually have their best quarter seasonally in the third quarter, as companies build up their inventory in preparation for the holiday season. Along with the release of the new x86 core, which will be known as Zen, and it starts to look like AMD will get the company back on track in 2016.

AMD will hold a Financial Analysts Day tomorrow, May 6th, in which it will go over the long-term strategy and growth opportunities. Ahead of the meeting, some slides done in the usual AMD style have been leaked and are floating around Reddit. These shares show that the company will tread water for the rest of 2015, but that huge technological jumps are coming in 2016 that will make the company more competitive in the high-end market.

Algorithmic Analysis

I Know First supplies financial services, mainly through stock forecasts via their predictive algorithm. The algorithm incorporates a 15-year database, and utilizes it to predict the flow of money across 2000 markets. The algorithm has more data to forecast within the long term and, naturally, outputs a more accurate predication in that time frame. Having said that, intraday traders, along with short-term players, will also benefit by taking the algorithmic perspective into consideration.

The self-learning algorithm uses artificial intelligence, predictive models based on artificial neural networks, and genetic algorithms to predict money movements within various markets.

The algorithm produces a forecast with a signal and a predictability indicator. The signal is the number in the middle of the box. The predictability is the number at the bottom of the box. At the top, a specific asset is identified. This format is consistent across all predictions. The middle number is indicative of strength and direction, not a price target. The bottom number, the predictability, signifies a confidence level.

The bullish algorithmic forecast is in agreement with the fundamental analysis in this case. The signal strengths are both strong, indicating that the stock price will increase over the predicted time horizon. Considering how much the stock price has already fallen and the upcoming meeting with analysts tomorrow, this makes sense. The stock price has bottomed out, and will slowly trade up from its current price until it is able to start releasing some of its new products next year. It is possible that the new products and technological leaps will cause the stock price to jump before then, making now a good time to buy this stock. When these products are released and make ADM competitive at the high-end of the market, this stock will be poised to break out.