Weekly Update 10.24.17

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Dear Subscriber,

We have AMD earnings up after the close and I'm going to use my expensive lesson on Nvidia--if you still own Nvidia HOLD IT and that goes for AMD too. 

My $18 target could come down based on guidance this evening but to me our overweight position is still warranted. 

IF YOU ARE uncomfortable with your AMD position then TRIM SOME with capital gains...NO harm taking 200%+ profits. 

What I got wrong on Nvidia that I do not want to repeat with AMD (which so far has only cost me a $100 a share in lost profits...no big deal :)) was the tremendous worldwide drive for GPUs to drive AI applications. 

Literally EVERY major company has  mission critical AI projects going just like the good old days of the early internet/web-sites in the late 90's. Nvidia is the show pony and AMD the workhorse in the AI/GPU chip race with Intel now making a move in machine learning with its Nervana AI chip introduced last week. 

Citibank came our with "SELL" call on AMD in response to the Intel chip...which is just silly. The Nervana AI chip is NOT  A GPU aka graphical processing unit. In fact, Intel now has every KIND of AI chip except for the actual star of the AI world the GPU. 

#2 With Ethereum crypto currency above $300, the AMD GPU has become the defacto standard for crypto "mining" servers. The term "mining" is crypto speak for people like me who have a dedicated server (mine is in ICELAND!) that peforms the transaction encryption service for a cryptocurrency in return for payment in the cryptocurrency. Right now its profitiable to mine Ethereum crypto (in low energy cost locations) and AMD GPUs are VERY hard to find.

The Average Selling Price (ASP) on these AMD GPUs are the highest margin in the AMD porfolio.

Additionally, the new Ryzen CPUs  also has a higher ASP which improves the company’s gross margin:

Client computing revenue increased by strong double-digit percentage from a year ago, driven by a significant ramp and strong sell-through of our Ryzen CPUs in the first full quarter of sales. Our Ryzen family of processors drove a richer mix of shipments and client ASPs improved significantly from a year ago.

This is consistent which the improving gross margins. I also expect the gross margin improvement trend to continue. While I believe that AMD’s best quarter will be its 4th quarter, I think the numbers released tell me we can expect a meaningful improvement in the 3rd quarter as well.

Final tally

All of the above factors are setting AMD up for an earnings beat. My final expectations can be seen below.

Earnings estimate: Revenue beat $1.52B versus $1.51B consensus and EPS beat $0.09 versus $0.08.

Key Point: Let's get through Q4 this year before we start to take significant profits on AMD.

Shopify

I use and have been a BIG fan of the Shopify e-commerce platform. I have compared all the competitors and Shopify is head a shoulders above the competition in user support and ecosystem. 

Citron Research issued a hatchet job on then 2 weeks ago and the stock dropped 22% in a few hectic days as long time shareholders of the Vancouver BC company did not know what hit them.

I have gone through the Citron Research report and its main premise "that Shopify is selling a get rich quick scheme" to starry eyed e-commerce yahoos is complete BS.

The subscription revenues are growing 65-78% per YEAR and accelerating. They truly have a better mousetrap and once a customer is on their system they do NOT cancel.

Action: For a short term trade, I like the January 2018 $110 Call option under 80 cents here with a $4 target. The announce earnings October 31 and will undoubtedly have comments to blow the Citron report out of the water (they of course issued the report at the beginning of "quiet zone" aka 4 weeks before earnings. 

A big snap-back to $115-$120 range looks likely...and the options are cheap here.

Finishing October Newsletter--65% of our positions are at alltime or 52-week highs. I added the AAOI options onto the portfolio...we failed to includes them last publication.

Up nearly 50% for the year...again...and over 135% up since 2016 as the "melt-up" we predicted in September chugs along.

- Toby

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