(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Shares of Advanced Micro Devices Inc. (AMD) have plunged 42% from previous highs. Now the stock is facing a decline of an additional 16% in the coming weeks from its price of $19.11 on November 19 based on technical analysis. The stock has fallen as part of the broader technology market sell-off.
The bearish sentiment comes as analysts slash earnings and revenue estimates for the fourth quarter. Additionally, Nvidia Corp. (NVDA) reported weaker than expected quarterly results last week, which have also weighed on the stock.
Weak Technical Chart
AMD's stock is falling below technical support at $19, and that suggests the stock may drop to about $16 in the coming weeks. Additionally, the stock's relative strength index has been steadily trending lower. This would suggest that bullish momentum continues to leave the stock and that it is facing steeper losses.
Analysts have been slashing their estimates for the fourth quarter over the past month. That is because the company reported weaker than expected third quarter results at the end of October. Analysts have cut AMD's earnings estimates 17% to $0.09 per share and revenue estimates 8% to $1.4 billion. Nvidia's weak fiscal fourth quarter 2019 earnings and revenue guidance doesn't help either.
Full-year earnings for AMD have dropped 4% to $0.46 per share, while revenue has fallen 3% to $6.51 billion. Earnings estimates have declined for both 2019 and 2020 as well.
The stock is still expensive, trading at a 2019 PE ratio of 28.4, which is well above the average of top 25 stocks that make up the iShares PHLX Semiconductor ETF (SOXX) of 12.8.
The deteriorating outlook for AMD's fundamentals, coupled with a steep technology and broader market sell-off, is likely to continue to weigh on the stock over the near-term. But should the outlook for the business continue to weaken, the stock likely has even further to fall.
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.