Well, hello Advanced Micro Devices, Inc. (NASDAQ:AMD)! Full disclosure: I’ve written some not-so-nice things about AMD stock in the past, but the little semiconductor company that could has sprinted ahead by about 30% in the past month, making me and other bears look foolish.
That is, of course, the risk of writing about a momo chip stock — or really any tech name, for that matter.
But I don’t think now is the time for bulls to celebrate. Shares showed some resilience to early weakness on Thursday, but it looks like it may be succumbing to a little bit of selling pressure on Friday.
Yet, I also don’t think the bears, which have watched far more trades go wrong than right, have a lot to crow about at this juncture, either.
Advanced Micro’s Tug of War
Right now, AMD stock has technical momentum and headline strength on its side. A few of the highlights over the past few months:
- Apple Inc. (NASDAQ:AAPL) launched a new iMac that will feature AMD’s Radeon Pro Vega GPU. Apple further heaped on top of the praise-train by emphatically declaring that the Radeon is the “most advanced graphics ever in a Mac.”
- The company launched its Ryzen CPUs to go up against Intel Corporation’s (NASDAQ:INTC) PC offerings. It started with the Ryzen 7, which boasted 8 cores and 16 threads, as well as a price low enough to start pulling customers away from some of the competition — though the Ryzen 5, launched in April, is an even more affordable version that targets value hunters.
- Most recently, AMD announced it will release the Ryzen Threadripper — with 16 cores and 32 threads — before the end of July, getting out in front of the release of Intel’s Core i9 Extreme Edition, which is due out in October.
- AMD also launched its line of Epyc server processors, which also will take on Intel, whose Xeon processors are flush with data center market share.
Of course, despite a 30% run in such a short amount of time, AMD shares are actually up just 27% for the year.
That’s because AMD has a fundamentals problem — something that sent the stock reeling back in early May.
AMD Might Be a Broken Clock
I think even the most ardent bulls will agree that Advanced Micro does not have sound fundamentals.
While Advanced Micro Devices is whittling down its debt, the balance sheet is still high in IOUs at about $1.5 billion in long-term debt. Margins are still problematic, and of course, the company still isn’t profitable despite all its advances. Its quick ratio — which measure a company’s ability to meet short-term obligations — is ranked among the bottom half of semiconductors.
All of this points to a company that is legitimately distressed.
AMD stock is able to cover up its problems partly because of the “broken clock” fallacy. A broken clock is right twice in a 24-hour cycle. If you happen to glance at such a defective timepiece at one of these two moments, you might assume that it’s functioning perfectly.
It’s even easier to convince yourself that everything looks good when you consider the bullish nature of the news reel. With every launch, AMD’s products are either touted as being superior to the competition, priced low enough to undercut the competition … or both.
The Epyc launch is a particularly hot runner because AMD is punching into a field that’s dominated by one of its primary rivals with a competitive product.
But when the headlines cool and analysts aren’t busy saying much, we have time to reflect on the chinks in Advanced Micro’s financial armor.
AMD Stock Might Have No Legs Left
These challenging fundamentals, and the chart, could pressure the chipmaker into cooling off yet again.
As it has a few times this year, AMD shares are starting to reach overbought territory per its Relative Strength Index (RSI) reading. The past couple times that has happened, Advanced Micro has been quick to pull back — first in early February when it pulled back from about $14.25 to roughly $12.60, and then again in late February/early March when it sank from multiyear highs of $15.55 back down to below $12.50.
This stock appears sensitive to its RSI, and that’s a problem as it reaches the $14.50 area, where thrice challenged between March and April before ultimately heading into its big spring slump.
InvestorPlace contributor Dana Blankenhorn brings up another point about the fundamentals. AMD directly competes against Nvidia Corporation (NASDAQ:NVDA), “but Nvidia is worth $85 billion in market capitalization, versus just $10.4 billion for AMD stock. It is supposed to be the most direct competitor to Intel in microprocessors, but Intel is worth nearly $170 billion.”
“AMD is outgunned no matter where it turns.”
Advanced Micro Devices has put out a few product victories this year, which is commendable and justifies at least some of this bullishness. But until AMD is able to show that it’s really able to put together a profit, its hot runs will continue to be extinguished when it runs out of headline steam.
AMD stock is running out of gas at the moment. Now might be the time to take some quick profits, and look for the next chance to reload.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
