Advanced Micro Devices, Inc (AMD): When Warm Just Isn't Hot Enough

Last Thursday after the market closed, Advanced Micro Devices, Inc (NYSE: AMD) reported earnings and now the stock is off by almost 22% over the last four trading days with most of the fall coming when the market opened on Friday after earnings were reported. Part of the problem for the company was bad timing as there were a whole bunch of earnings reports that came out last Thursday and Friday plus major tech names like Microsoft Corporation (NASDAQ: MSFT) and Google (NASDAQ: GOOG) missed Wall Street expectations. Nevertheless, our SmallCap Network Elite Opportunity (SCN EO) portfolio position in Advanced Micro Devices went from a handsome profit to being down about 6%, but we aren't going to worry too much for the following reasons:

The Earnings Report Beat Expectations. Advanced Micro Devices did largely beat Wall Street expectations when it reported earnings. Revenues fell 18% to $1.16 billion while Wall Street had expected $1.1 billion; plus the company reported a net loss of $74 million verses net income of $37 million for the same period last year, while Wall Street was expecting a loss of around $102.9 million. CEO Rory Read also said that Advanced Micro Devices is on track to report net income in the third quarter, something that hasn't happened since mid-2012, with most of an expected 22% sequential improvement in revenue expected to come from console chip sales. Finally, Gross margin will drop to about 36% this quarter from 40%. Stock Downgrades. Some Wall Street analysts decided to downgrade Advanced Micro Devices after the earnings report with John Pitzer of Credit Suisse cutting his rating from "Neutral" to "Underperform." Pitzer noted that while the results and guidance were ahead of Wall Street's estimates, he cautioned that estimates for the company's profits from videogame consoles appear too high He added: "Its unclear to what extent new gaming platforms are incremental relative to AMD's current royalty position." Joseph Moore of Morgan Stanley also called the earnings report "a good quarter," but then he cited margins from game consoles that will be lower than expected when he downgraded the stock to an "Underweight" rating. Neutral Analyst Opinions. Not everyone was downgrading Advanced Micro Devices as Citi analyst Glen Yeung reiterated his "Neutral" rating plus he increased his price target by $2 to $5. Yeung added that while the video game player business will boost sales, its products have very small margins which will limit its effect on the company's bottom line. Meanwhile, Susquehanna Financial Group's Chris Caso also backed his "Neutral" rating and raised his price target by $1.50 to $4. However, Caso did caution that the company's cash balance and debt obligations leave it little flexibility plus he added there is no guarantee that the new video game consoles its chips supply will be successful. Finally, Wedbush Securities' Betsy Van Hees has kept her "Hold" rating and noted: "It was a great report but a lot of the good news is already priced in." Cramer Still Likes the Stock. For what his oppinion may be worth, Jim Cramer, the host of CNBC's Mad Money, recently said: "I'm a buyer as a bullish bet on new gaming consoles." Share Performance. Advanced Micro Devices fell 0.82% to $3.63 in heavy trading yesterday, but the stock is rising in premarket trading plus its still up 59.2% since the start of the year, down 14% over the past year and down 21.9% over the past five years:

For technicians, here is the latest technical chart for AMD:

Again, Advanced Micro Devices put in a pretty good earnings report – meaning the selloff after or perhaps the run up ahead of earnings was a bit overblown.

SmallCap Network Elite Opportunity (SCN EO) has an open position in AMD. To find out what other open positions SCN EO currently has, and to learn why so many traders and investors are relying on this premium subscription service, click here to find out more.