(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Advanced Micro Devices Inc.'s (AMD) stock has been hot since the start of April, with shares surging by roughly 58%, driven by better than expected revenue and earnings growth. However, shares are about 10% off their intraday highs on June 18 and may be about to plunge an additional 11%, based on analysis of the trading chart.
Should the stock decline in the coming weeks, it would come as a big blow to the options traders and their bullish bets. One reason the stock may be facing a sharp decline is a significant drop off in revenue growth analysts are forecasting for next year and could make the considerable earnings forecast a challenge to achieve. (For more, see also: AMD Traders Bet Stock Will 11% Short Term.)
Weak Technical Outlook
The technical chart shows that the stock has been unable to get back above technical resistance at $15.60 despite multiple attempts as seen on the hourly trading chart. Should the stock continue to fail to rise above that level of resistance, it may result in the shares declining to roughly $13.75 over the coming weeks, a drop of more than 11% from its price around $15.50.
Not only does the pattern in the chart look terrible, but volume levels in the stock have also declined in recent days, suggesting that buying interest may be waning. Additionally, the relative strength index has even started trending lower, a reversal from its previous uptrend.
Slowing Revenue Growth
AMD is forecast to have significant growth rates in all of 2018, with earnings expected to nearly triple and revenue expected to rise by over 26%. But revenue growth is expected to slow dramatically in 2019 to 8.5%, and then to roughly 6% in 2020. Despite slowing revenue, earnings are still expected to grow very quickly over the next two years, at over 30%. It is going to put pressure on the company and its ability to control margins in the future quarters to achieve big earnings growth. (For more, see also: Why AMD's Soaring Stock May See a Sharp Pullback.)
Should AMD pull back as the weakening technical suggests, it will come at a significant cost to bullish traders betting AMD's shares will rise.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.