AMD: Why The "Hot Money" Investing Could Go Very Cold


I heard a new term the other day. You're probably familiar with it, but it was new to me: hot money. It's a reflection of the new kind of market dynamics we're all seeing lately, and the best, fresh example of "hot money" is Advanced Micro Devices .

Hot money is the natural evolution of day-trading; momentum investing that dips into a stock for about three days, and then bails out when the news that was anticipated finally breaks. Hot money gets particularly hot around earnings, and with AMD's numbers out later today, the hot money is flowing.

Investors are making some wild bets on AMD, a stock down more than 60 percent last year, another 12.6 percent since Jan. 1, fending off brutal product delays that have killed its growth.

First it was Barcelona; delays that CEO Hector Ruiz told me a while ago were an awful disappointment. More recently, it was AMD's Phenom family of chips. The stock's been downgraded, its future questioned, and Ruiz's tenure might be in jeopardy.

Yet shares are on the rise ahead of its quarterly release thanks to some wild rumors making the rounds. They include: a massive reorganization featuring huge layoffs and an executive shuffle; Ruiz's departure; the outsourcing of manufacturing at the company's large Dresden, Germany facility; another cash infusion from Abu Dhabi investors; or even a surprisingly good earnings report that blows past Street expectations.

Trouble is, all of those ideas are longshots. I'm not saying they're impossible, but AMD is hardly known for drastic, out-of-the-box initiatives that generate big-time excitement that leads to instant stock moves north. Ask weary shareholders. I think they'd agree.

AMD shares have a $5 target on them from Banc of America and shares almost touched that level a week ago. But since then, the hot money has bolstered the stock in a big way, adding almost 20 percent.

If AMD doesn't come up with something dramatic today, that big popping sound will be its stock. When the hot money goes icy cold. And you gotta wonder just how long investors will watch Ruiz ride this stock into the cellar.

Questions? Comments?