Advanced Micro Devices, Inc. (AMD) Stock Became a Market Stunner — Can it Last?

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If I’m being painfully transparent, I almost want to call Advanced Micro Devices, Inc. (NYSE:AMD) “fake news.” A little more than two years ago, AMD stock was trading for under two bucks. Now, it has been toying with $15 with little sign of slowing down. And I don’t consider a near 5% loss on the day to be a sign of anything. This is especially true considering Advanced Micro Devices is up 22.6% for the year so far.

Advanced Micro Devices, Inc. (AMD) Stock Became a Market Stunner, But Can This Last?

I understand the point that rallies can be extremely pronounced from the depths of market volatility. We’ve seen similar patterns in the number one rival for AMD stock: Intel Corporation (NASDAQ:INTC). Those that bought the dips in Nvidia Corporation (NASDAQ:NVDA) and held on for the big surge were handsomely rewarded.

But these are companies that are recognized leaders in their field of specialty. AMD, in contrast, historically has been the discount leader, playing catch-up with the big boys.

Still, AMD stock registered an amazing 295% run last year. Even more astounding, speculators that caught AMD in mid-February of 2016 saw their investment rise by around 600%! Go in hard with a couple performances like that and you’ll be out of the rat race in no time.

But is there any growth remaining in Advanced Micro Devices?

A Game Changer (Literally!) for AMD Stock

InvestorPlace contributor Joseph Hargett certainly thinks so. His bullishness isn’t based just on the momentum begetting momentum thesis. Rather, Hargett sees the company’s latest Ryzen CPU as a game changer, something that will put the hurting on Intel. From the initial reports, it’s hard to disagree.

Ryzen will go head-to-head with Intel’s flagship i7 processor, which isn’t a surprising move in and of itself. Advanced Micro Devices and Intel have always warred for consumer attention like bitter siblings. Naturally, Intel has had the upper hand, whereas AMD was considered the “poor man’s Intel.” That same dynamic can be found in the markets, with AMD stock gyrating from euphoria to despair and back again.

Although it’s a commonly expressed sentiment with mixed results, this time could be different for Advanced Micro Devices. The Ryzen is armed with more features than the i7, including attributes that are vital to its core video-gamer base.

Most importantly, it clocks in at half the price of its rival’s offering, which will inevitably draw much excitement. AMD has previously supplied chips to Microsoft Corporation (NASDAQ:MSFT) and Sony Corp (ADR) (NYSE:SNE) for their video game systems.

On the technical front, Hargett notes that there’s significant shorting activity in AMD stock. All it would take are a few good reviews, and that will send shares moving higher. Those who are short Advanced Micro Devices will have to cover their position to stay in it. But the overwhelming upside pressure could be too much, forcing them to close their transaction. In order to do that, borrowed shares of AMD stock that initiated the short would have to be bought back.

After those market gymnastics, demand for AMD shoots even higher.

Advanced Micro Devices Still Has to Face the Music

Of course, the obvious risk is whether or not the computing industry bites. Maybe after intensive reviews, the Ryzen isn’t what it seemed to be. After all, we are talking about semiconductors. This sector has a bloody history of punishing missteps — and not everyone makes it out alive. Considering that AMD stock is still very much a speculative investment, the obvious risk is not one to take lightly.

I think we can all appreciate the moxy that Advanced Micro Devices has shown. Other companies could have simply folded under the trials, but not AMD — good for them. But we also can’t ignore the reality of the situation. As InvestorPlace contributor Ryan Furhmann notes, “Intel is expected to report sales of around $59 billion this year. AMD stock will log just over $4 billion in sales, making it about 7% the size of Intel.”

Due to the easing of the supply glut in computer chip products, some might think we’re entering into a semiconductor renaissance. I look at it more as the changing of the tide. However, the ocean is still the ocean. AMD stock and others can enjoy the favorable tailwind, but eventually, there will be another challenge.

The question is, will AMD be strong enough to weather it?

It’s a Super-Risky Proposition

If you look at the technical momentum, you have to like the chances for AMD stock. Shares are moving firmly in a bullish trend channel. Aside from some overheating readings, the standard technical barometers are signaling green. As Wall Street likes to say, the trend is your friend.

AMD stock, Advanced Micro Devices
Click to Enlarge
Source: Source: JYE Financial, unless otherwise indicated

Here’s the deal — based on the Altman Z-score, the only thing that Advanced Micro Devices has been doing is moving from one state of distress to another. We’re not arguing whether the company is on stable ground: it’s not. We’re just analyzing magnitude of troubles.

For a contrarian, buying when others are selling is an art form. But what happens when everybody else is buying the same troubled stock? Furthermore, shouldn’t an embattled company make substantive strides of improvement?

Strictly from the data, AMD moved from intractably distressed to “normal” distressed. That is an improvement, I’ll concede. But at some point, the dial has got to move to at least a grey zone. Sadly, AMD stock is well far away from that. So even though it has been an incredible ride, I think investors need to be cautious here.

As of this writing, Josh Enomoto was long SNE stock.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/advanced-micro-devices-amd-stock-stunner/.

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