Weekly Update 5.11.17


Dear Subscriber,

Well, judging by emails from our fabulous subscribers:

A) many of you still own Nvidia shares at 300% gains,

B) many own OLED shares now up over 100% this YEAR and want to know if you should buy more AMD.

The answer is YES...and it has to do with Nvidia (my mea culpa on our "take profits" advice to follow).

AMD selloff & OLED Surpasses our Target: 

AMD sold off spectacularly last Tuesday after the company disappointed investors with its gross margin outlook. We have gone all over the numbers and in reality Q1 2017 was a very good quarter for the company. . . so what happened?

#1 Some institutional investors are WAY overreacting to the gross margin guidance. #2 AMD was owned by a LOT of momentum black box hedge funds that his automatic sell buttons at the same time. #3 AMD is now way oversold, making a great time/very timely  to start/add to our position (giving the NVDIA blow out sales to our favorite secular growth space cloud based Artificial Intelligence data centers).

Action to Take: IF you have no AMD position, take one under $11 with $18 target. IF you want to leverage your existing position, let’s buy the $12 January 2018 Calls <$1.75 with $5 target.

Technically we HAVE a bottom in the stock. The Nvidia news on their continued BIG AI sales ramp means AMD has a big AI ramp in sales too…and they have their new Polaris and Vega chips in the market in second half 2017 that are AI bombs.


Disappointing guidance

AMD expects its second-quarter revenue to grow by just 12% year over year---and I simply do not get or believe the conservatism. The steep decline in the stock price following AMD's earnings report was mostly due to this guidance. Here's what the second quarter will contain:

  • A full quarter of Ryzen 7 sales
  • Nearly a full quarter of Ryzen 5 sales
  • A full quarter of Polaris sales
  • Some contribution from Vega
  • Some contribution from Naples

Ryzen 5, AMD's mainstream CPUs, launched at the beginning of April. The first Polaris graphics cards didn't become available until late June of last year, deep into the second quarter. Vega, AMD's upcoming high-end GPU, and Naples, AMD's upcoming server CPU, are expected to launch at some point during the second quarter.

In other words, the second quarter of last year contained essentially none of the above. The comparison should be incredibly easy for AMD. Given all of these new products, 12% growth simply isn't enough. To be fair, Vega and Naples may not contribute much revenue in the second quarter, depending on when they launch and how long they take to ramp up. But even so, if AMD is forecasting Polaris and most of the Ryzen desktop lineup can only drive 12% growth, it's no wonder the stock fell off a cliff.

Key Point: NO ONE really knows why they gave such surprising guidance—but the ridiculous strength at Nvidia for Artificial Intelligence in-the-cloud ---186% GROWTH y-o-y reported last night means Google, Baidu, IBM, Tencent joined Amazon and Microsoft in consuming MASS amounts of GPUs as their AI engine.

NVDIA MEA CULPA: I DID believe from all the data we collect that the slowdown in the 60% of Nvidia sales to gaming sets would offset the big growth we looked for in AI…I was DEAD WRONG. I advised to take some of your Nvidia profits around $100…on worries of downturn in the gaming market for GPUs.

Well I was dead wrong: the successful Nintendo roll out with Nvidia GPUs sucked up a lot of gaming GPU demand…and the AI explosion we have forecast for the last two years has hit…BIGLY>

We MISSED adding Nvidia call options I was hoping to put on AFTER a pullback…MY BAD. I know by emails that a lot of you still own Nvidia shares…you just got 17% added to your 250-300%+ gains from our former recommendations.

We are Doing work on new valuation on on Nvdia as it hit my $120 target…but for the time being BUY AMD shares or options and take advantage of this way overcooked pull back.

AMD’s array of new products—including its Ryzen desktop processors (launched this quarter), and Naples and Vega server and graphics processors out this quarter— will help shares recover. Wells Fargo’s David Wong, who raised his valuation range on the stock to $18 from $11-$13, writes that the company “continues to execute well,” and “with sales up 18% year over year in the March quarter and guidance for 12% growth in the June quarter, AMD is continuing to demonstrate a recovery in sales and move towards profitability.” Canaccord Genuity’s Matthew Ramsay concurs, writing that his “Buy thesis remains very much intact.” Successful new product introductions should yield “materially higher gross margins” than today, he asserts.

AMD CEO Lisa Su says that while higher video game console chip sales this quarter pressured margins, investors should expect a year-over-year increase.

Reality: After more than tripling for us is the past year, AMD shares were vulnerable to profit-taking on even a wisp of bad news. However, as higher-margin Ryzen chips and other new products come online this year, a recovery will rock the shares higher.

AMD was heavily owned by algorithmic momentum hedge funds like Renaissance

The company's margin outlook for the current quarter shocked Earnings algo black box momentum investors. Though the company's revenues and earnings were "in-line" with analysts' consensus expectations, investors took issue with the chip company's gross margin guidance, quickly selling their shares into the weakness. I believe there is huge opportunity to be found in AMD's emotionally fueled sell off.

A gross margin of 33 percent is still pretty good, and though it is less than what the chip maker achieved in the last quarter, it is no reason to discount AMD's shares by 25 percent. Like I said, the emotionally fueled sell off is a good opportunity to buy into Advanced Micro Devices as shares are wildly oversold.


Shares of our favorite play on organic light-emitting diode materials maker Universal Display (OLED), a BIG OLED supplier to Samsung Electronics are higher almost 22%, at $115, after the company reported Q1 revenue and profit that blew away consensus estimates, and raised its year outlook, saying it now has “sufficient visibility” to predict higher revenue.

WE WERE not surprised at all.Revenue in the three months ended in March rose to $55.6 million, yielding EPS of 22 cents per share. Analysts had been modeling $33.8 million, and break-even on the profit line.

For 2017, the company raised its revenue outlook to a range of $260 million to $280 million, versus what had been a range of $230 million to $250 million. But remember the REAL growth spurt in OLED comes from Apple 8 and Apple 10 phones which only really start their ramp in late 2017 but really start to roll in 2018. OLED gets a royalty on EVERY OLED screen at both Samsung and Apple.

CEO Sidney Rosenblatt remarked, “It is an exciting time for the OLED industry. We are encouraged by the momentum that we are seeing from our customers as well as from the supply chain that supports the OLED ecosystem. With customers’ mounting investments in new manufacturing capacity and the development of an array of new display and lighting products, we expect our growth trajectory to be positive for the foreseeable future.

As we look forward, we believe that the OLED industry is poised to grow faster than earlier expectations this year. We are therefore raising our 2017 revenue guidance range to at least $260 million to $280 million, reflecting year-over-year growth of 30% to 40%.”

Ladies and Gents…we are primarily investing in the Super 7 amazing and once a generation convergence of technology spending “Supercycles” 2016-2020:

  1. Data center based Artificial Intelligence (AI): Nvidia, AMD
  2. Conversion of billions of digital devices and TVs from LED screens to OLED: OLED AMAT LRCX
  3. Transformation of NAND memory from 2D to 3D: MU LRCX AMAT
  4. The Internet of Things (based on new 5G wireless roll-out starting later this year): Impinj (PI)
  5. Apple 8, 9, 10 Super Cycle: OLED MU Synaptics (SYNA)
  6. Autonomous Driving Vehicles: MobileEye (being bought by Intel) Autoliv
  7. ALL of these driving $400 Billion a YEAR in Data Super Center development (aka the Mega Cloud.

We will add new direct plays on 5G Supercycle with Cavium Networks (CAVM), 3D NAND with Axcellis (ACLS) and Apple upgrade with Synaptics (SYNA) and long term call options on Apple shortly. To make REAL money on new positions we need SOME pull back like the AMD pull back…it takes patience but PATIENCE is what has made us up now 25% for the year.

Have a great weekend!

- Tobin

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