Advanced Micro Devices (AMD): Should You Be Concerned About Mubadala Big Stock Sale?


Investors were surprised to hear that one of Advanced Micro Devices (AMD) largest shareholders was scaling back from the stock. Specifically, Mubadala Investment, the investment arm of the government of Abu Dhabi, said that it had sold 34.9 million shares of the chip giant. But Mubadala also exercised 75 million AMD warrants into common shares, valued at $450 million. The stock closed down last week, after dropping following the news of the sale. That was AMD’s first bad week of 2019, having risen by 30% between the New Year and last week.

In a calming tone, Mubadala tweeted, “We remain amongst the company’s top shareholders and are proud of our continuing partnership with AMD.”

Stifel analyst Kevin Cassidy agrees with Mubadala’s statement, noting, “AMD has a strong pipeline of differentiated products and confident that AMD’s management team will continue to execute to plan. We recommend investors use AMD share weakness to build a long position.”

The recent dip plays well for Deutsche Bank analyst Ross Seymore, who rates the company a Hold and has a price target at $20, less than its current trading value.

Seymore says, “While Mubadala exercising the warrant and keeping the shares to be sold in a block sale would perhaps be interpreted as a steadier outcome, we believe that the fact that their ownership will remain so large after this transaction continues to demonstrate their conviction in AMD.” He continues, saying he estimates “the share dilution impact of the warrant exercise to AMD to be ~$0.01-$0.02 annually (Street EPS for CY19E $0.66). Finally, we note that there is no restriction of share ownership after these warrants are exercised. While we do not expect major dislocations in Mubadala ownership going forward, it’s certainly a possible decision they could consider without restrictions.”

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Ross Seymore has a yearly average return of 25.9% and a 80% success rate. Seymore is ranked #24 out of 5,141 analysts.

Overall, AMD had had a whirlwind 2018, after the chip market suddenly crashed and sent stocks in a freefall. The stock settled up more than 40% for the year, after giving back nearly 50% in the final few months. Nevertheless, AMD is up 20% this year, but still has analyst perplexed. TipRanks analysis of 20 analyst ratings show a consensus Moderate Buy rating with an even split of 10 Buy recommendations and Hold. The $26.65 price target represents a 16% increase from its current value. (See AMD’s price targets and analyst ratings on TipRanks)