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Has Advanced Micro Devices, Inc. (AMD) Stock Finally Run Out of Gas?

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For a company whose sales grew 20% year-over-year in its latest quarterly report, Advanced Micro Devices, Inc. (NASDAQ: AMD ) is going nowhere fast. Gaming, crypto-currency mining and the promise of cloud sales propelled AMD stock from a 2016 low of under $2 per share to its current price of around $13 per share.

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But the stock has stalled out, and there are many theories as to why. As InvestorPlace contributor Lucas Hahn notes, the company lacks profits. James Brumley notes that many analysts are growing bearish. Meanwhile, Luke Lango simply calls Advanced Micro Devices maxed out.

All this may be true. I have noted in the past there seems to be too much hype around AMD stock and I suggested in April there was more risk than reward in it. Since I wrote that last piece, the shares are down 10%.

But all guesses on the reasons for Advanced Micro Devices' gyrations are wrong.

The Real Story Behind AMD Stock

The main reason for the current selling pressure on AMD stock is the state-owned Mubadala Investment fund of Abu Dhabi.

The fund has dumped big blocks of shares twice this year. It had been the largest shareholder of the company, a stake going back all the way back to 2007. Its most recent sell-off represented 3.9% of AMD's entire float , a 40 million share block that should, when you look at Advanced Micro Devices' own reports, make it the second-largest holder, on a level consistent with the mutual fund companies that hold it passively for their U.S. investors.

That, however, is not your all-clear signal. Mubadala also owns 75 million warrants to buy more shares, which along with its remaining 57 million share stake means it's still the largest owner, by a wide margin.

When it first bought into the company in 2007, AMD was strapped for cash after buying Canadian graphics company ATI, and the shares were about to fall off a cliff, losing half their value over the next six months.

Mubadala spent $750 million on the original stake, and Reuters has calculated it took in about $1.1 billion on the two share sales it made this year, while continuing to hold a stake that, according to my own calculations and Reuters' figures, should be worth another $1.7 billion.

Mudabala has been patient, and it has earned its profit, but it apparently needs to get out now. That's what I call selling pressure.

The Rest of the Story

The rest of the Advanced Micro Devices story remains what it has been.

The company's sales continue to grow, spurred by the purchases of crypto-currency miners and gaming graphics cards that can compete against those of Nvidia Corporation (NASDAQ: NVDA ).

There remain analysts who are bullish on AMD stock's prospects and these include Bret Kenwell, who says it still pays more to be a buyer of the shares than a seller.

But traders should always look at a company's own summary of who its owners are , and ask whether there are weak hands there, before plunging. Abu Dhabi is on the Saudi side in the current battle over its neighbor Dubai, and Dubai's relative independence from the Saudi political line. There could be more reasons to sell down the road.

Bottom Line on Advanced Micro Devices

Most of the recent action on AMD stock has nothing to do with the company's financial performance, or its technology. Advanced Micro Devices chips are increasingly competitive with Intel Corporation (NASDAQ: INTC ) and NVDA, and its balance sheet should continue to look better as its assets become worth more.

The question for investors is how long Advanced Micro Devices can continue to barrel ahead before Intel delivers the kind of hammer blow it's capable of, with faster CPUs and graphic designs that blow AMD's current efforts out of the water. The company remains less than one-tenth Intel's size, by sales, and while Intel takes time to move, it does move.

My guess is that Mudabala will exit, Intel will move, and AMD stock will seem to stabilize for the next several months, but if you have a profit in the stock, this might be a good time for you to take it.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time , available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn . As of this writing, he owned no shares in companies mentioned in this article.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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