Advanced Micro Devices, Inc. (AMD) Stock Is Hanging by a Thread

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AMD stock - Advanced Micro Devices, Inc. (AMD) Stock Is Hanging by a Thread

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Chipmaker Advanced Micro Devices, Inc. (NASDAQ:AMD) issued an impressive second-quarter earnings report last week, and AMD stock jumped in response. The ballyhooed launch of its Ryzen processor and sales of its graphics processing chips — thanks to demand from cryptocurrency miners — were everything they were supposed to be, and more.

Advanced Micro Devices, Inc. (AMD) Stock Is Hanging by a Thread

Source: AMD

The rally was oddly short-lived, though.

Despite the good news, a couple of high-profile analysts chimed in with concerns that the red-hot stock was poised to deliver nothing but downside from here … at least for a while.

Could these pros be right about AMD stock? Actually yes, they could, for a couple of different reasons.

The Pendulum Swings Both Ways

For all intents and purposes, Advanced Micro Devices has won the war for the hearts and minds of tech investors of late. Nvidia Corporation (NASDAQ:NVDA) still dominates the GPU market, while Intel Corporation (NASDAQ:INTC) remains the king of the CPU world. AMD has given the market an amazing turnaround story over the course of the past several months, however, and investors love redemption stories.

Still, inasmuch as Advanced Micro Devices isn’t yet profitable again (on a full-year basis) and isn’t expected to be so right away, it’s arguable that the bullish sentiment has run its course and is now starting to swing in a bearish direction again.

That’s more or less how Goldman Sachs analyst Toshiya Hari sees it, anyway. He recently explained:

“AMD’s management has successfully introduced multiple new products without any major disruptions, which we acknowledge to be a significant improvement vs “the old AMD” (i.e. where product ramps were impacted by yield issues). However, Street EPS estimates are likely to remain largely unchanged, in our view, given increasing opex (low DD yoy growth for four consecutive quarters – incl. CQ3) and a step-function change in diluted share count.”

He’s right. Advanced Micro Devices can build all the better mousetraps it wants. The question remains, can it make more money in doing so?

Citigroup analyst Christopher Danely is thinking along the same lines, rating AMD stock as a “sell” with a price target of only $5. Danely’s concern is more founded in the likelihood of deterioration GPU demand for the purpose of cryptocurrency mining, though. He recently, flatly stated, “Ethereum (a cryptocurrency) mining related GPU gold rush is over.”

Danely and Hari are mostly in the minority, though it really doesn’t matter. What matters is that traders are starting to listen to such doubts, quietly — perhaps even subconsciously — ready for any reason to take their profits.

AMD Stock Hitting Is a Technical Wall

The story that spurred Advanced Micro Devices 100% higher since this time last year was less rooted in fundamentals and more rooted in sentiment … and that’s dangerous. See, sentiment is incredibly cyclical; yesterday’s darlings become tomorrow’s dogs.

We’re already seeing hints of this with AMD stock, with Hari and Danely helping to set the stage.

The first and biggest red flag was where Wednesday’s intraday rollover got started. All it took was a brief bump into (and slightly above) February’s peak at $15.54 to kick-start a wave of selling. The ambush suggests a number of traders were already on the fence; they’ve just tipped their hand.

AMD stock chart
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Underscoring the idea that there are more sellers than buyers out there is the volume. We didn’t see any strong bullish volume days in July, but we saw several high-volume selling days for the month.

Bottom Line

To be clear, the bullish undertow is intact until the rising support line that tags all the key lows since May (yellow) is broken. That may not happen soon, if at all.

On the other hand, with the turnaround honeymoon now over and investors increasingly thinking “show me,” AMD stock is anything but a must-have right now. At the very least, Advanced Micro is a company to keep a distrusting eye on until any brewing cyclical pessimism has clearly run its course.

That could take weeks to happen.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/07/advanced-micro-devices-inc-amd-stock-is-hanging-by-a-thread/.

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