Advanced Micro Devices (AMD) Rockets to All-Time High

Advanced Micro Devices, Inc. (AMD) reports earnings on July 28, with analysts expecting a profit of $0.17 per share on $1.86 billion in second quarter 2020 revenue. The stock fell more than 3% after the semiconductor giant met first quarter estimates and issued in-line second quarter guidance in April, but it bottomed out quickly and settled into a trading range that broke to the upside this week. The stock is trading at an all-time high in the mid-$60s after Dow component Intel Corporation (INTC) pushed out the release of its 7nm-based CPU.

Cowen upgraded AMD stock last week, lifting its price target to $65, more than $1 below the current price. Analyst Matthew Ramsey reiterated his bullish view, noting “Strong and predictable product execution and server revenue growth remain the most important long-term measuring sticks; we are confident in both. Expect upside to Q3 and FY20 consensus driven by console. Q3 GM percentage likely ticks lower quarter-over-quarter, but strong ex-console year-over-year core margin expansion should continue.”

Valuation marks the biggest risk for market players buying the stock ahead of the report because it has rallied more than nine points in the past two sessions, setting a high bar for continued upside. Wall Street consensus adds to this cautionary view, with the advance lifting price well above the median $58 target and just $5 below the Street-high $71 target. As a result, interested investors should hope for additional upgrades and price target increases heading into the earnings news.

Advanced Micro Devices Long-Term Chart (1990 – 2020)

A choppy uptrend through the 1990s topped out at $48.50 in 2000, giving way to a steep bear market decline that settled at an 11-year low in the single digits in the fourth quarter of 2002. The stock performed well during the mid-decade bull market, recouping about 80% of the prior decline before topping out at $42.70 in 2006. Aggressive sellers then took control, carving a steady downtick that accelerated during the 2008 economic collapse, before bottoming out at the lowest low since the 1980s.

The stock tested the low in 2012 and 2015, completing a triple bottom reversal that presaged a strong uptrend, driven by the bitcoin mining craze. The uptick stalled below resistance at the 2000 and 2006 peaks in September 2018, ahead of a November 2019 breakout that reached $59.27 in February 2020. It held up well during the vertical selloff into March, bouncing strongly at the 50-week exponential moving average (EMA) and trading back to the high in April.

Advanced Micro Devices Short-Term Chart (2018 – 2020)

The on-balance volume (OBV) accumulation-distribution indicator topped out in February 2020 after a strong accumulation phase and pulled back into March. It reversed in April after testing resistance and has, so far at least, failed to lift into the red line. This sets off a modest bearish divergence that increases risk heading into next week’s release, warning that buying interest may not be sufficient to support higher prices without a pullback.

Two-year price action shows unusual symmetry, with the 2018 into 2019 cup and handle breakout pattern looking identical to the smaller-scale 2020 breakout pattern. This type of “echo” can presage strong and long-lasting price development that has the potential to lift Advanced Micro Devices shares into the triple digits in coming years. Even so, it’s best to trade shorter-term buy and sell signals until broad benchmarks generate stronger tailwinds.

The Bottom Line

Advanced Micro Devices stock has broken out to an all-time high, complicating the reward-to-risk profile heading into next week’s earnings report.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.