Shares of Advanced Micro Devices Inc. are known for their volatility. However, AMD stock could be a good long-term play.
If Sunnyvale, California-based Advanced Micro Devices, Inc. (NASDAQ:AMD) was known for just one thing, it would be the notorious volatility AMD stock brings to the table. To understand this, one just needs to look at the movement of AMD stock in this year alone. The stock of the Dr. Lisa Su led company started 2017 at a price of $11.42 a share and fell to $9.75 within a month, a fall of 14% in 13 trading sessions. This was followed by a rise of 56% over the next 25 trading sessions, to close at a high of $15.2 in late February. This huge rally was then followed by a big downswing which saw AMD stock trade at $10.04 in early May, a 24% fall in 2 and half months.
These swings have been followed by smaller up and down swings of 10% to 30%, with each swing lasting less than 15 trading sessions. The latest upmove saw AMD stock gain 8.56% in just one single day. Not surprisingly, AMD stock trades at a Beta of 2.68, which captures the huge volatility inherent in the chipmaker's stock. Having understood the kind of volatility the scrip brings to your portfolio, how do you play AMD stock? Is it a good buy following the latest pop?
AMD Is In A Clear Long Term Uptrend
Consistency is one thing no investor will ever associate with AMD stock. However, the stock has been displaying a consistent pattern of higher highs and higher lows throughout the last one year. Putting it another way, while AMD stock has seen big swings, the traded price range has constantly moved up. AMD stock is in a clear uptrend and investors shouldn't get worried by big sell-offs or too excited about big upswings.
AMD stock faces crucial resistance at the $14.38 level, which was the recent high (in June). The next crucial support level will come at the $15.2 level, which was the highest close for the stock in the last one year. If AMD stock does take out this high, it will be yet another confirmation of the long-term uptrend in AMD stock.
A Trigger For A Fresh Rally?
AMD stock price has responded to various news reports/rumors, which have acted as triggers for the volatile swings in the stock price. The EPYC server chip launch, Ryzen CPU launch served as triggers for bull runs. On the other hand, the sell rating from Goldman Sachs (NYSE:GS) caused a panic among AMD stockholders and a trigger for a sell-off. As we had covered in a recent post, AMD stock might have just found the trigger for the next bull run in the stock. According to the Passmark quarterly market share report, AMD grabbed nearly 10 percentage points of CPU market share from its rival, Chipzilla Intel (NASDAQ:INTC) in the second quarter of Fiscal 2017. In this context, the 8.5% gain in the last trading session isn't all that surprising.
Is all the hype which had surrounded the Ryzen product launch finally beginning to reflect in results? If the market share gain reports are true, it could soon reflect in the company's fundamentals. hence, the upcoming Q2 earnings report.
How Should Investors Play AMD stock?
Having understood the recent trading activity in AMD stock, its easier to play AMD stock. Investors should look to buy the stock at the lower end of the long-term trading range. Based on the most recent bounce in the stock, investors should look to initiate fresh positions at the $12.5-$13 levels. On the upside, short-term traders with a high-risk tolerance can initiate fresh positions above the resistance range of $14.38 provided that the breakout is accompanied by strong volumes. For the long-term and risk-averse investors though, a buy on the dip approach would be best suited.
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