To The Moon

Who is still buying a new PC?

$Advanced Micro Devices(AMD)$  was punished on Wednesday after it posted a lackluster earnings report that saw its revenue in the first quarter dropping 9% from $5.89 billion in the same period last year and a net loss of $139 million in stark comparison with a net income of $786 million for the year-ago period. The semiconductor chip maker blamed the decline and loss on the prevailing slump in the PC market, as demands for PC nose dived post-pandemic after many companies had accelerated their plans to automate their operations and digitise their businesses, while consumers had rushed to purchase and upgrade their hardware at the onset of COVID-19 in order to cope with remote working and studying. Hence, companies and consumers do not find urgent needs to refresh their hardware in the short term. Demands were further depressed by postponement or cancellation of capital investments and shelving of expansion plans amidst rising geopolitical tensions and an impending global recession in the backdrop of rising interest rates to tame a stubbornly high inflation and tightening of liquidity as banks struggled to shore up their balance sheets to avoid falling victim to the next bank run.

AMD is not alone in facing these macro headwinds, as its primary competitor in the PC and server chip markets similarly reported a retreat of 36% in its overall sales earlier. Nevertheless, AMD's CEO Lisa Su predicted a return to growth in the second half of this year as the PC and server markets recover from their bottoms. However, investors did not take comfort in the prediction, as AMD stock price plunged as much as 10% after the earnings results were released.

A change of heart the next day!

Lo and behold! On the next day, that is yesterday, AMD share price shot through the roof by gaining as much as 12% on news that chip maker is collaborating with $Microsoft(MSFT)$ on a new artificial intelligence processor, and ended the trading session recovering much of its loss yesterday. Microsoft's major competitors in the cloud infrastructure, i.e. both $Amazon.com(AMZN)$  that is the market leader and $Alphabet(GOOG)$  that is hot on Microsoft;s heels, have already developed specialised chips that software developers could deploy to train their models, while Microsoft has yet to launch one. Hence, the joint collaboration between Microsoft and AMD carries heavy significance for both companies and has been code named Athena.

As cloud computing and artificial intelligence are poised to drive the next phase of technology innovations, the collaboration with a big tech with a market capitalization second only to Apple certainly gave AMD a shot in its arm and sent its share price flying.

I believe that the market probably also reckoned that the heavy selling the day before had been overdone and a correction was necessary. In any case, short sellers might have scrambled to cover their positions to mitigate the risks of further losses.

Brave hearts fall in!

As long as the fundamentals of AMD have not deteriorated significantly, I would stay invested to ride on its long-term growth. With Lisa Su at the helm, I believe that the competent management will be able to steer the company through prevailing headwinds and emerge stronger, as it continues to innovate to stay competitive with Intel and widen its investment moat.

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