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Once
a plucky competitor to much larger Intel in chips for personal
computers and servers, AMD is now struggling to expand into new
growth markets and it has repeatedly fallen short of Wall
Street's expectations.
The annual interest rate that short sellers pay to borrow shares
of AMD surged from 4 percent to an unusually high 50 percent
last week, according to SunGard's Astec Analytics, which tracks
securities lending.
That rate tends to rise in line with demand from short sellers,
who borrow and sell stocks they think will fall in price, hoping
to make a profit by buying the stock back more cheaply later on.
A significant percentage of stock in a short position indicates
that investors expect it to drop in value.
The increased cost of borrowing AMD follows a recent leap in the
number of AMD shares sold short. About 19.7 percent of AMD's
shares outstanding were short sold in mid-July, the most recent
data available, up from 15.1 percent at the end of June.
In the options market, bets against AMD have increased since
mid-July. Currently, puts outnumber calls 2.4-to-1, the highest
since Jan. 26, according to Trade Alert data.
But a strong two-day rebound in AMD shares from all-time lows
may be pressuring some short sellers to close their bets to
avoid losses.
AMD's stock was up 10.7 percent at $1.96 on Wednesday, adding to
a 9 percent gain the day before, with no obvious catalyst
driving the rebound.
AMD scores 86 out of 100 in a Starmine model predicting the
likelihood of seeing such a short squeeze, considering
volatility and availability of shares for borrowing.
Underscoring AMD's troubles, Moody's on Tuesday cut its
corporate family rating on AMD to Caa1 from B3, signaling a very
high credit risk. It pointed to the company's negative free-cash
flow and operating losses in its PC-related business.
The company's low stock price has also stoked speculation it
could be acquired. Reuters reported in June that AMD was in the
initial stage of reviewing whether to split itself in two or
spin off a business.
(Additioal reporting by Saqib Ahmed in New York; Editing by
Steve Orlofsky)
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