AMD: A Contrarian Play Amid Overblown Bearish Sentiment

Semiconductor stocks have faced headwinds in recent months as investors grapple with slowing PC demand, supply chain uncertainties, and macroeconomic volatility. Yet amid this gloom, Advanced Micro Devices (AMD) presents a compelling contrarian opportunity. While bearish option activity and rising implied volatility suggest excessive pessimism, the fundamentals of AMD's business—driven by AI compute growth and robust financials—point to a stock poised to rebound. Here's why now is the time to buy AMD before its Q2 earnings and upcoming AI catalysts.

The Bearish Narrative: Overstated Risks in Options Markets

Recent options data paints a picture of heightened skepticism toward AMD. The company's 30-day put/call volume ratio (as of June 2024) averaged 0.45, suggesting a bullish bias, but shorter-term activity tells a different story. On May 14, 2025, traders rushed to buy puts ahead of the May 16 expiration, with put volume spiking to 535,569 contracts—a signal of near-term fear. Meanwhile, implied volatility (IV) for AMD options has climbed to a 30-day high of 38.5%, with an IV rank of 74, indicating options are pricing in extreme uncertainty.

But dig deeper, and this bearishness appears overdone. . While IV has surged, AMD's stock price has held near $120, up 6.87% year-to-date, reflecting underlying strength. The real story lies in the expiration-specific data: For the May 2025 options expiry, the put/call open interest ratio plunged to 0.01, with calls outnumbering puts by a staggering 14,616,100 to 146,196. This suggests long-term investors are doubling down on AMD's bullish trajectory, even as short-term traders fret.

Why the Bearish Sentiment is Misplaced

1. Strong Fundamentals Underpin Resilience
AMD's Q1 2025 results were a masterclass in execution. Revenue surged 36% year-over-year to $7.438 billion, with free cash flow hitting $727 million (9.77% of sales). Management guided for $7.4 billion in Q2 revenue, implying a $29.72 billion annual run rate—a pace that could outstrip even bullish estimates.

2. AI and HPC Demand Are Ignored by the Crowd
The market's focus on near-term PC sales misses AMD's true growth engine: AI and high-performance computing (HPC). A $10 billion AI compute contract with Saudi Arabia's HUMAIN, announced in late April, could boost AMD's annual revenue by ~10%. This deal alone justifies a higher valuation, yet the stock trades at just 14.7x forward earnings—well below its five-year average.

3. Insider Activity Doesn't Tell the Whole Story
Critics point to insider selling in May 2024 as a red flag. However, the bulk of sales came from a single director, and the company's executive team has maintained a strong buy bias. CEO Lisa Su has consistently emphasized long-term AI opportunities, and AMD's $6 billion share repurchase authorization underscores confidence in its valuation.

Technicals and Data: The Contrarian Edge

The technicals align with this bullish contrarian thesis. . While put buying has spiked in reaction to short-term noise (e.g., macroeconomic data), AMD's stock has held key support levels, with a 50-day moving average at $117.50 acting as a floor. Meanwhile, the recent surge in call buying at the $123 strike (May 16 expiry) suggests traders are pricing in a potential breakout to $125–$130—levels that would align with analysts' average $126.29 target.

The Case for Immediate Action

The bearish option activity and elevated volatility are creating a rare buying opportunity. Here's the roadmap:
1. Focus on Q2 Earnings: AMD's June results will likely showcase HPC and AI revenue growth, validating its long-term story.
2. Target the $125–$130 Range: With call options at $123 strike (expiring May 16) trading at $4.67, investors can leverage this bullish momentum at a 3.9% cost relative to the stock price.
3. Monitor Implied Volatility: A drop in IV post-earnings could unlock additional gains as options premiums compress.

Final Verdict: Buy AMD Now

The fear embedded in AMD's options markets is a gift for contrarians. While short-term traders focus on noise, the company's AI-driven growth, robust financials, and undervalued stock price make this a rare “buy the dip” opportunity. With a catalyst-rich quarter ahead and a stock trading at a discount to its potential, AMD is positioned to reward bold investors.

Disclosure: I am long AMD.

This analysis synthesizes AMD's fundamentals, technicals, and the mispricing in options markets to argue that now is the time to position ahead of a potential breakout. The data is clear: the risks are overstated, and the rewards are substantial.