Advanced Micro Devices, Inc. (NASDAQ:AMD) stock has continued its downtrend in spite of the recent encouraging news. So, how should you play AMD stock now?
Sunnyvale, California based Advanced Micro Devices, Inc. (NASDAQ:AMD) has been in the news recently, and for all the good reasons. The Dr. Lisa Su led company has been having a good time, only not so much on the bourses. AMD stock has failed to shrug off the longer term downtrend seen on the chart and with not much of encouragement on the AMD stock technical chart, it's hard to buy into the semiconductor play now. Given the recent positives, how do you play AMD stock now? Let's find out.
AMD Stock Could Get A Boost From Multiple Positives
So, why has Advanced Micro Devices, Inc. been in the news lately? The first of the many positives came at the end of last month when Jefferies analyst Mark Lipacis named AMD stock among his top four semiconductor stocks. Lipacis cited positive reactions to the EPYC server MPU and interest (in EPYC) from the top hyperscale datacenter players as drivers of the optimism. And, how did Mr. market respond? Totally ignored the optimistic commentary. AMD stock closed the last trading session at $12.26 a share, down by more than 5% from last month's $13 a share close.
The next positive news focussed on the GPU-demand driven by the crytocurrency boom. As we had covered in our recent NVIDIA coverage, the demand from cryptocurrency miners is expected to drive GPU revenue for both NVIDIA as well as AMD. AMD stock did respond with a nice uptick in the September 11 trading session, only to face resistance from the 50-day and 100-day simple moving averages (SMAs). What followed was nothing new, as AMD stock continued on its downward trajectory. Maybe Mr. market needed more conviction?
Or, maybe not. According to the latest data from IHS Markit, AMD led the growth in the semiconductor sector in Q2. The overall sector revenue came in at $101.4 billion, up 6.1% on the year, the industry's fastest growth in nearly three years. AMD led the sector with growth of 24.7%, on a quarter-on-quarter basis. However, the news failed to excite investors as AMD stock continued to languish.
All of this was followed by a meeting between Jefferies analyst Lipacis and the AMD management. And, what exactly did Lipacis have to say? The analyst reiterated his $19 price target and a buy rating on AMD stock. The Jefferies analyst expects AMD gross margin to expand by 400bps, driven by server share gains of 800 bps, by the end of next year.
For comparison, AMD has a TTM (Trailing Twelve Month) gross margin of 24.8%. In other words, Lipacis's commentary implies a gross margin of around 29% by next year end. The analyst upped his CY 18 earnings estimate to 40 cents a share, which means that AMD stock is currently trading at a one year forward multiple of 30x. The commentary failed to improve investor sentiment and AMD stock price has remained flat in the last two trading sessions. So how should you play AMD stock from here?
Playing AMD Stock Now.
The spate of positive news has failed to convince AMD stock investors to bid the stock higher. Given the nearly 2 month long downtrend AMD stock seems to be caught up in, the AMD stock technical chart doesn't look all that encouraging. The AMD chart is flush with sell signals, something we had covered in detail in our last post on AMD technicals. Given the poor technical setup, AMD bulls should wait for a breakout above the 20-day and 50-day SMAs, both of which are currently at the $12.5 level. A breakout above these levels, backed by strong volumes will be a positive signal to buy into AMD stock. Hence, investors looking to buy AMD stock should wait on the sidelines, until the stock can breakout above this crucial resistance level. Wait and watch is the best way to play AMD stock, at least for the moment.
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