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How Low Can AMD Sink?

Uh-oh. Shares of Advanced Micro Devices (NYSE: AMD  ) are exploring two-year lows right now after unveiling another weak earnings report. Does this 12% overnight plunge present a buying opportunity, or is it a clear signal to run far, far away from the chip designer?

Well, let's see. In the second quarter, AMD's sales fell 10% year over year to $1.4 billion. The year-ago period's $0.09 of non-GAAP earnings per share shrunk to $0.06 per share. The revenue result was right in line with analyst targets and the bottom line missed Street expectations by one measly penny per share. Hardly reason for an all-out panic like today's sell-off, particularly since the numbers have largely been known for weeks. AMD slashed its sales guidance in mid-July, triggering another 10% share-price plunge.

CEO Rory Read pointed fingers at soft consumer spending and the weak global economy. Combined, these factors blew strong headwinds over AMD in "the closing weeks of the quarter," he said.

That may be true, but larger rival Intel (Nasdaq: INTC  ) managed to grow sales 5% against the same market backdrop. In other words, Intel is executing while AMD is not. The larger company hardly needs to steal market share from AMD to assert itself, yet that's exactly what's happening here.

All things considered, I'm not convinced that AMD lies on its deathbed as the market action would indicate, but the stock also looks way too risky to recommend even at these prices. The overnight plunge is likely overdone, but I plan to close out my bullish CAPScall on AMD in the next few days at a still-significant loss. This management team absolutely must get its act together and start executing on a long-term plan, and none of that is happening today. According to CFO Thomas Seifert, AMD's current focus is on "stabilization and recovery."

AMD remains a risky turnaround bet, but Intel is the bluest of blue chips with some of the most shareholder-friendly policies on the Dow Jones Industrial Average. Read up on three stellar Dow dividends in this free report.

Fool contributor Anders Bylund holds no position in any of the companies mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+. The Motley Fool owns shares of Intel. Motley Fool newsletter services have recommended buying shares of Intel. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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