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Why AMD’s Shares Tumbled 9%

AMD announcement in San Francisco, California, Wednesday, August 17, 2016.  (Photo by Paul Sakuma Photography) www.paulsakuma.comAMD announcement in San Francisco, California, Wednesday, August 17, 2016.  (Photo by Paul Sakuma Photography)

The old Wall Street adage is buy a stock on the rumor, and sell on the news. This week, shares of Advanced Micro Devices were buffeted by investors buying on a rumor and selling on no news.

Or perhaps not quite the news investors wanted to hear.

The excitement started Tuesday morning, when tech news site Fudzilla reported that it had confirmed the widespread rumor that Intel (INTC) would license graphics processor technology from AMD after a previous licensing deal with Nvidia (NVDA) expired in March. That sent AMD shares soaring 12%.

After the market closed, AMD CEO Lisa Su and other top executives made a presentation for analysts. Su and her team outlined a strategy to push the company’s newly developed Ryzen central processing chip that runs at the heart of PCs into additional markets, as well as a forthcoming a new graphics chip known as Vega. AMD also announced a new super-charged version of Ryzen called Threadripper, which could be an early volley against Intel’s anticipated Core i9 chip for computers, as well as a Ryzen variant for servers called EPYC.

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But AMD did not announce a deal with Intel. In fact, it highlighted its graphics capabilities as a strategic advantage in the chip wars against Intel and Nvidia. Having both chips for running PCs as well as graphics chips “really allows us to bring this together for the best of both worlds and really optimize the system,” Su told the analysts as she sought to convince them of AMD’s unique position in the market. Intel is strong in making central processors to run PCs and servers, while Nvidia makes the most popular graphics chips. But only AMD makes both parts.

The lack of a deal announcement tripped up AMD’s stock in after market trading, and by Wednesday afternoon, in a weak overall market, its shares were down 9%. Update: AMD’s shares closed down 12% on the day, erasing all of the gain from Tuesday, and after the market closed, Intel officially shot down the entire story.

Still, the stock has held most of its huge gain over the past year—it’s up more than sixfold from last February—as investors have become increasingly confident in Su’s turnaround plan. The CEO junked products that didn’t compete well against Intel’s chips and put all of AMD’s resources behind developing significantly redesigned chips with capabilities that could beat the competition. That has paid off so far, as the Ryzen line started with chips that could match or beat Intel’s performance at half the price.

Also likely hurting the stock in the short term on Wednesday was Su’s announcement that the company was shooting for annual adjusted earnings per share of 75 cents. AMD’s (AMD) stock price boom came on the hopes that Ryzen and Vega would ignite an earnings boom, too. Some analysts were expecting $1 a share or more.

“A path to (at least) $1/EPS remains critical for long-term investors to see sufficient risk/reward in AMD shares, despite the much improved management team and product roadmap,” Matthew Ramsay, an analyst at Canaccord Genuity, wrote on Wednesday.