Advanced Micro Devices (AMD) Closing in on $100

Advanced Micro Devices, Inc. (AMD) stock is closing in on the triple digits for the first time in its 49-year public history after posting a fabulous 100% return in 2020. Monday's appearance at the Consumer Electronics Show (CES 2021) marked the latest positive catalyst, right on the heels of a report that activist investor Dan Loeb is pressing Dow component and rival Intel Corporation (INTC) to pursue "strategic alternatives."

Key Takeaways

  • AMD stock is closing in on $100 for the first time in its public history.
  • The company is benefiting from rival Intel's missteps.
  • AMD stock doubled in price in 2020.
  • The current uptrend could last for several years, at a minimum.

Recent Boons for AMD and NVDA

AMD and NVIDIA Corporation (NVDA) have benefited greatly from mismanagement at Intel, picking up significant market share at the same time they're introducing new generations of chips that will power artificial intelligence and self-driving vehicles in coming years. It could take years for old-school tech behemoth Intel to recover from its failure to compete, allowing key competitors to permanently dominate highly profitable and rapidly growing tech segments.

AMD is set to acquire Xilinx, Inc. (XLNX) in an all-stock transaction that is expected to close at the end of 2021. A secondary offering will be needed to create those shares, suggesting volatility later in the year. The transaction has generated mixed reactions due to the $35 billion price tag, which some analysts believe is too much to pay for the deal. However, investors have voted with their pocketbooks since the October news, lifting shares to new highs.

Wall Street coverage on AMD has dried up since the start of December, with little bullish or bearish commentary and few new price targets. That could change after the Jan. 26 earnings release, when the company is expected to report a fourth quarter 2020 profit of $0.30 per share. Despite rapid share appreciation, that consensus would mark a slight drop in earnings per share (EPS) compared to the same quarter in 2019.

Analyst consensus has dropped to a "Moderate Buy" rating since the acquisition news, based upon 12 "Buy" recommendations, five "Holds," and one "Sell." Price targets currently range from a low of just $13 to a Street-high $120. The stock is set to open Tuesday's U.S. session $4 above the median $94.50, suggesting that it's fully valued at this time. However, that may be misleading because the low target looks out of date, perhaps from a firm no longer covering AMD.

Market share is the percent of total sales in an industry generated by a particular company. Market share is calculated by taking the company's sales over the period and dividing it by the total sales of the industry over the same period. This metric is used to give a general idea of the size of a company in relation to its market and its competitors.

AMD Daily Chart (2018–2020)

Chart showing the share price performance of Advanced Micro Devices, Inc. (AMD)

The uptrend that started in 2016 stalled at $34.14 in October 2018, giving way to a decline that held major support in the mid-teens. The stock turned higher in 2019, finally working its way back to the prior high in June. A November breakout reached $59.27 at the start of the pandemic, which triggered a modest selloff that held support at the 200-day exponential moving average (EMA) in March. The stock returned to the first quarter peak in April, finally breaking out once again in July.

The rally paused once again in August, yielding a consolidation similar in size and scope to price action in the first half of the year. This pattern has worked off overbought technical readings, raising the odds that the rally will mount $100 and keep on going, posting the next leg of a powerful uptrend. More importantly, gains could persist well beyond 2021, especially if Intel fails to wake up from the dead and do what's needed to get back on the growth track.

Consolidation refers to an asset oscillating between a well-defined pattern of trading levels. Consolidation is generally interpreted as market indecisiveness, which ends when the asset's price moves above or below the trading pattern. A consolidation pattern could be broken for several reasons, such as the release of materially important news or the triggering of a succession of limit orders.

The Bottom Line

AMD stock is testing December's all-time high and could break out, potentially trading well above the psychological $100 level.

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

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