Weekly Update 6.6.17


Dear Subscriber,

Apologize for being tardy on update and May newsletter. We've been working on 4th anniversary special reports and got behind. And YES we hired new webmaster and the website is going to back up and update. Newsletter out by Wednesday...promise! 

AMD--I HOPE you got a chance to take advantage of our "the bottom is in" call from mid-May! We got our third bite at the AMD apple at $10.70 or better and the $12 calls at $1.25.

Today the stock is $12 and the call options have DOUBLED to $2.50 ask. 

Advanced Micro Devices (NASDAQ:AMD) is benefitting from the continued popularity of cryptocurrency like Bitcoin because currency “miners” can use the company’s powerful graphic cards as a way to “mine” for coins. AMD graphics cards in the RX 500 series, which launched in April, are sold out at many online retailers due to the cryptocurrency demand.

Bitcoin is up 160% this year (and I apologize for not covering more of the cryptocurrency story...with Japan and Australia now accepting Bitcoin as payment the entire cryptocurrency space has become transformational. The Bitcoin ETF GBTC is selling at an 80% premium to the underlying Bitcoin value so its nuts to buy it at this point. But we have AMD as a true "picks and shovel" play on the entire cryptocurrency space. 

AMD is also benefitting from Apple’s announcement yesterday that the Vega graphics processors will appear in the new and revamped iMac line.The inclusion of Vega is notable because Apple traditionally used integrated graphics and is now stepping towards dedicated graphics likely as a way to boost its virtual reality efforts.

AMD gives us direct IP exposure to secular growth plays Virtual/Augmented Reality, Artificial Reality, Cryptocurrency mining, and of course e-gaming and the shift to GPUs in general. 

Action to Take: IF you have no AMD position, take one under $12.50  with $18 target. IF you want to leverage your existing position, let’s buy the $12 January 2018 Calls <$2.50 with $5 target.

Here is what we said in Mid-May. 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.

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. The addition to Apple PCs and now sold out demand for cryptocurrency mining (Note: "mining" is term in cryptocurrency to describe how people who host servers that provide the blockchain network are paid for providing that bandwidth and storage to the cryptocurrency.)

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.

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) Cavium 
  5. Apple 8, 9, 10 Super Cycle: OLED MU Apple Call Options
  6. Autonomous Driving Vehicles: MobileEye (being bought by Intel) Autoliv AMD Nvidia
  7. ALL of these driving $400 Billion a YEAR in Data Super Center development (aka the Mega Cloud).

We are adding buys (details to come in the newsletter but I want you to take advantage of our research now!)

Axcellis/ACLS--semiconductor equipment pure play on 3D NAND <$25 with $40 target

Advanced Opto-Electronics/AAOI--laser fiber optic play on the conversion of data centers from 25 gigabit speed to 100 gigabit speeds. They are IP and low cost leader in the lasers Buy <$75 with $110 target

Cavium CAVM: THE semi conductor play on 5G upgrade already underway. 124% y-o-y growth with 5G upgrade cycle JUST starting...and they are big in the data Super Center super cycle upgrade to 100 gigabit speed as well. Buy under $75 with $120 target.

If you are still holding Nvidia shares..keep holding. Working on new valuation with new data on their AI chips and the big uptick in Nintendo gaming equipment now with Nvidia chips.

Double issues newsletter out in June...

Portfolio: up 38% so far this year (if you still hold Nvidia you are up 44%--OY!) 

This is renewal season...this is time to press our bets into the "Super 7 Super Cycles" 

- Tobin

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