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.

Key Takeaways

  • AMD stock has broken out to an all-time high and could post impressive gains in coming years.
  • Risk into next week's earnings has increased due to this week's high-percentage gains.
  • Buying interest needs to play "catch-up" with advancing price.

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.

Valuation is the analytical process of determining the current (or projected) worth of an asset or a company. There are many techniques used for doing a valuation. An analyst placing a value on a company looks at the business's management, the composition of its capital structure, the prospect of future earnings, and the market value of its assets, among other metrics.

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

Long-term chart showing the share price performance of Advanced Micro Devices, Inc. (AMD)
TradingView.com

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)

Short-term chart showing the share price performance of Advanced Micro Devices, Inc. (AMD)
TradingVew.com

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.

Divergence is when the price of an asset is moving in the opposite direction of a technical indicator, such as an oscillator, or is moving contrary to other data. Divergence warns that the current price trend may be weakening and in some cases may lead to the price changing direction.

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.