Timing Advanced Micro Devices: Will It Break Out Or Break Down?
- Advanced Micro Devices has been volatile in 2017 but is maintaining short term channels while offering competitive products.
- AMD's technical analysis supports a strong buy when used in conjunction with the growth opportunities AMD has by increasing its market share in the industry.
- Vega will prove to be a game-changer for AMD and the time to buy is now.
Advanced Micro Devices (NASDAQ:AMD) has had a volatile year so far in 2017. The stock is up almost 15% since it opened the year at $11.43 per share but ranged from $9.75 (down 14%) to $15.2 (up 36%). Since AMD reached its peak in late February, the stock began a downward trend until reporting its first quarter earnings. AMD lost 12% of its value in the two months leading up to its Q2 earnings report but looked as if it was forming a nice bull flag. However, when AMD reported its earnings in May, the stock dropped 25%.
Advanced Micro Devices (AMD) reported a first quarter earnings report that was largely in line with expectations. Guidance however was better than expected so a strong sell off was over exaggerated based on the streets reaction of fewer sales from the Ryzen chips. We believe that expectations for the Ryzen chips were too high as the strong results of the new product will not be seen until 2Q. The sell off after the 1Q earnings report provided a great buying opportunity for the long term as the company reported that there will be new products coming out in the second half of 2017 in addition to the sales that will be generated by new products recently offered. Shortly after AMD's earnings release, rival company Nvidia (NVDA) reported very strong quarterly results resulting in a strong run up in the industry as it confirmed the demand and future growth for the chip sector. This began the start a short term uptrend in AMD's stock which has been trading in a nice channel for the past two months. Seen below, big moves have been made in this channel as the stock experienced 10-20% swings but maintaining the upward trend.
Currently AMD is up big this week even though it just bounced off the short term support line in the channel it is trading in. Short term, it is technically a good time to buy the stock as it has continuously bounced off support. Long term (depicted below) shows that the stock has support close to the current price around $12.60 and has been consolidated over the last 6 months. Interestingly enough, the short term support above is at a similar price to the long term. A bounce off these support levels in the short term may result in some resistance at $14.50. Using technical analysis is a helpful tool when used in conjunction with the company's fundamentals and industry strength. The sector which AMD competes in is in its early stages of growth and AMD is a strong competitor among its peers. AMD consistently rates a close second behind Nvidia and is gaining market share. (CPU Ratings)
With the stock consolidating at current levels and trading close to the short term and long term support line could mean a break out in the stock above resistance is possible especially with a catalyst to support the upside. We believe that the second quarter earnings will be very strong as the Ryzen chip has been gaining recognition in the industry and its new products being offered in the second half of 2017 are expected to change the game in the industry and take market share away from rival companies such as Intel (INTC) and Nvidia in CPU's. Guidance for 2Q is $1.15B in sales and $-0.2 EPS, however, with strong sales from Ryzen and upbeat guidance on new products, AMD should have a strong beat on both the top and bottom line. This report could be the catalyst AMD has been waiting for to break out of consolidation and push through resistance. We expect AMD to break through its resistance of $14.50 and trade between $16 and $18 by the end of 2017. Long term this company provides investors much greater opportunity. Becoming more competitive in the industry, AMD will start reporting positive EPS and strong growth; so the long term future of the stock could be as bright as the growth Nvidia experienced in the last 2 years.
AMD is making opportunities to take market share from rivals in CPUs and its new gaming graphics card, Vega, one of the products being offered this year, will now make AMD more competitive in high end gaming. Until now, NVDA dominated in the high end gaming business but with Vega, AMD is now a much stronger competitor. Analyzing the specs of Vega and comparing it to NVDA's products, Vega provides the high end gaming community competitive specs (WCCFtech) in speed, memory bandwidth, and graphics.
Timing is everything and it is time to buy Advanced Micro Devices. Short term technical analysis indicates a buy and so does the long term growth potential AMD offers. The stock has been trending upward and currently trading around the upward support and as it approaches an optimistic quarter result, the technical analysis could be used in conjunction with fundamentals to suggest a strong buy when realizing the long term growth opportunities the company offers investors. Long term technical analysis also indicates a buy as the stock has shown consolidation over the past 6 months and has maintained its support. In the short term, the stock needs to continue to maintain this channel which will add to its consolidation before breaking out on a strong second quarter result. Finally the company is gaining strength in the chip industry and becoming a key rival that is stealing market share from companies such as Intel and Nvidia.
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Analyst’s Disclosure: I am/we are long AMD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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