Advanced Micro Devices, Inc. (AMD) stock booked solid gains in the third quarter, posting an all-time high at $94.28 in early September. It has now rallied within two points of that peak, setting the stage for a potential breakout that lifts the former laggard into the triple digits for the first time in its 35-year public history. That uptick, if it happens, would likely coincide with a similar move in the Nasdaq-100 index, which is also within reach of its bull market and all-time high.
- AMD stock has rallied within reach of September's all-time high.
- The stock has doubled in price since the start of 2020.
- Price action is likely to follow the lead of tech benchmarks in coming weeks.
The stock has booked an incredible 102% return so far in 2020, with buying interest underpinned by delayed product releases at Dow component Intel Corporation (INTC). Misfires at the old-school tech behemoth have allowed smaller rivals to grab precious market share while introducing new customers to lightning-fast chip sets that have garnered glowing reviews. Better yet for AMD, Intel is showing no signs of waking up and cleaning out comatose management.
Even so, AMD sold off in October despite beating third quarter top- and bottom-line estimates and raising fourth quarter guidance. AMD confirmed that it would buy Xilinx, Inc. (XLNX) in a $35 billion all-stock transaction at that time, prompting a "sell-the-news" reaction because the deal could weigh on margins in coming quarters. In addition, the company has little experience in combining corporate cultures, raising the potential for unforeseen roadblocks.
Wall Street coverage has grown more cautious on AMD stock in recent months, with a "Moderate Buy" rating based upon 13 "Buy" and 6 "Hold" recommendations. One analyst now recommends that shareholders close positions and move to the sidelines. Price targets currently range from a low of just $13 to a Street-high $120, while the stock has opened Tuesday's session about $2 above the median $90 target. Upside may be dependent on broad market forces, given this elevated placement.
Profit margin is one of the commonly used profitability ratios to gauge the degree to which a company or a business activity makes money. It represents what percentage of sales has turned into profits. Simply put, the percentage figure indicates how many cents of profit the business has generated for each dollar of sales.
AMD Daily Chart (2018 – 2020)
An uptrend that started in January 2016 stalled in the mid-$30s in September 2018, giving way to a decline that found support in the mid-teens at year end. The stock returned to the prior high in June 2019 and eased into a trading range, ahead of a November breakout that mounted resistance at the 2000 and 2006 rally highs. Price action tested new support during the pandemic decline, finally resolving to the upside in a July ascending triangle breakout.
The uptick topped out above $90 in early September, while the subsequent decline found support near the 50-day exponential moving average (EMA) in the low $70s at the end of that month. The stock tested that level in November and turned higher once again, reaching within two points of resistance on Monday. The on-balance volume (OBV) accumulation-distribution has lagged positive price action in the past month and is likely to set off a bearish divergence during the first stage of a breakout.
Relative strength readings are mixed, raising the odds that the stock will just follow the lead of other semiconductors and the Nasdaq-100 index. As a result, don't be surprised if the short-term tape tells a bearish tale, carving a sizable reversal that reinforces resistance into year end. Of course, the flip side would be more rewarding to shareholders, with a positive feedback loop triggering new highs all across the tech universe.
An ascending triangle is created by price moves that allow for a horizontal line to be drawn along the swing highs and a rising trendline to be drawn along the swing lows. The two lines form a triangle. Traders often watch for breakouts from triangle patterns. The breakout can occur to the upside or downside.
The Bottom Line
AMD stock is testing September's all-time high and is likely to follow the lead of the Nasdaq-100 in coming weeks.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.