Optimism in AMD? It's Overdone
NEW YORK (TheStreet) -- Since reporting fiscal first-quarter results April 18, shares of beleaguered chip company Advanced Micro Devices
AMD's results were better than expected, but this company still has far to go to catch rivals Qualcomm
However, with gains of 66% in a manner of weeks, investors still holding at this level are playing a game of chicken with their portfolios.
I like a good turnaround story as much as the next person. But jumping on AMD's bandwagon here after the company posted results that were (at best) "less bad" than expected seems overdone. It's hard to be impressed with a 6% decline in quarter-over-quarter revenue and a 32% decline year over year. Nevertheless, bulls jumped for joy that AMD beat estimates, while also forgetting that this was the second consecutive quarter of 30%+ sales erosion.
The company posted a non-GAAP net loss of 13 cents per share, or $94 million, which, after one-time charges, beat estimates of a net loss of 17 cents.
This is clearly a company with underlying fundamental issues. Meanwhile, rivals including ARM Holdings
Regardless, AMD investors are filled with optimism. I appreciate that. However, given the company's lack of competitive leverage, I do wonder if management's aggressive growth strategy, which will likely arrive at the expense of better margins, can work in the long term. It's not as if AMD has been raking in the cash -- it's now posted four consecutive quarters of negative cash flow. It's a "lose if you do and lose if you don't" situation.