We often spend the weekend looking ahead to potential market-moving catalysts. What are the major economic releases? Which companies will be reporting earnings? While we don’t ignore upcoming events once the trading week is underway, we must also keep an eye on what is trading, and which stocks are actually moving and why. Upcoming events are those we see through the windshield, but one must also look side-to-side and check one’s mirrors too. Two of the semiconductor stocks that reported this week saw some big post-earnings moves and substantially above-average options trading activity. Among the biggest winners were Wolfspeed Inc. (WOLF) and Advanced Micro Devices Inc. (AMD) . AMD WOLF 5D mountain AMD vs Wolfspeed, 5 days Are options markets aligned with these spikes or fading them using them as opportunities to initiate new bearish positions? Betting against Wolfspeed Wolfspeed popped sharply after a modest topline beat. Wolfspeed “is a global leader in Silicon Carbide technology and RF semiconductors” that supplies the EV industry as well as telecom, military and aerospace. As the global automotive fleet transitions to EVs, the company would appear to have a meaningful secular tailwind, something management appeared to support describing “very, very heavy demand”. Additionally, some issues building capacity appear to be largely resolved, and they describe their wafers as as “the best” in the industry. Did options traders jump on the mild beat and positive comments to place bullish bets? Well, not exactly. While there was some short-dated call buying, essentially playing for a little follow-through, some of the longer dated activity was bearish. For example, the January 2025 $17.50 puts saw some opening buying activity, and although those have a long time to go until expiration they’re 44% out-of-the-money to the downside. So despite the upbeat commentary and forecast from management, and the positive move in the stock price, some options traders believe the downtrend that began in December 2021 could resume. Several analysts were also unimpressed with the results, JPMorgan, Roth MKM, Canaccord Genuity, Morgan Stanley, Citi and Deutsche Bank all reduced their price targets. With negative cash flow forecast for the foreseeable future, the company will need to take on even more debt (they currently have 5.2B in debt) – a more daunting and expensive exercise these days. The put purchase suggests that some traders believe the company may find itself in a cash/credit crunch despite the growth. AMD also popped sharply after and options volumes exploded. At almost 30 times forward earnings, AMD isn’t a cheap stock, and the $5.8 billion in revenues the company reported for the quarter represented only 4.2% year-over-year growth. Betting on AMD Unlike WOLF, AMD was up over 50% year-to-date going into the print so the pop wasn’t a short-covering rally. Instead, the story for AMD was all about AI. Management pointed out that AI will not see only one winner, referring to Nvidia (NVDA) and projected 2024 revenue associated with the data center GPU business. Remember that GPUs are the higher margin product generally associated with AI versus CPUs, although GPUs are used in gaming, supercomputing, and graphics intensive workflows like videoediting, and it was in GPUs that AMD discussed 2024 revenue potentially exceeding $2 billion. Additionally, AMD will be launching their MI300 series GPUs December 6th, another potential catalyst to move the stock. At least one options trader believes that the stock’s surge could be sustained through that event, purchasing 3,000 AMD December $110 calls paying $5.95/contract. The buyer of these calls is risking just under 6% of the current stock price to make a bullish bet that AMD could rally as much as 7.5% or more over the next 6 weeks. Two semis, both offering products critical to big secular trends, but only one of these, AMD, has net cash on the balance sheet and substantial free cash flow in the forecast. Thirty times earnings isn’t cheap in this environment admittedly, but then good businesses rarely are. DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
