It doesn’t take an experienced technical analyst to see that Advanced Micro Devices, Inc. (NASDAQ:AMD) stock is running into resistance. Twice this year, AMD stock has made a run past $15 only to hit a wall.
Now, it’s doing it again ahead of AMD earnings next year. Both of the share’s earlier trips above $15 ended quickly — and with good reason. AMD stock has earned every bit of its 600%+ run from early 2016 lows. But now the road is much tougher and I’m skeptical there’s a catalyst that can help the shares break through that resistance any time soon.
AMD Stock Is Running Out of Catalysts
Without a doubt, Advanced Micro Devices has executed one of the most-impressive turnarounds in recent memory. CEO Lisa Su has transformed the company from playing second fiddle to Intel Corporation (NASDAQ:INTC) in a declining PC space to a diversified chipmaker with offerings in GPUs and datacenter chips.
The Ryzen CPU line has driven huge market share gains, as our Brad Moon pointed out in July. Vega GPUs are challenging NVIDIA Corporation (NASDAQ:NVDA) in high-end gaming, with some success. The June launch of Epyc processors — which should take some of Intel’s near-100% share in that space — drove AMD stock higher, helping it recover from an ugly Q1 report.
The problem for AMD stock, though, is that all these launches aren’t yet translating into earnings growth. You see, 2017 consensus EPS estimates still sit at about 10 cents while 2018 numbers are at 32 cents. AMD itself is targeting 75 cents a share by 2020.
Intuitively, then, it’s not hard to see why $15 might present a psychological barrier. At that level, investors are paying 20x 2020 earnings for a stock that, recent performance aside, hasn’t entirely proven itself yet.
There is optimism surrounding the new launches, admittedly. But there’s also going to be stepped-up competition in return, most notably from Intel, which hasn’t had to work that hard to maintain its dominance. The long and continued bull run in NVDA stock suggests investors aren’t terribly worried about that company losing market share. If investors are betting just on the recent launches to push AMD stock higher, that is a tough argument to make from a fundamental standpoint.
AMD In The Sweet Spot
So, I think Advanced Micro Devices needs something more than it has to offer right now.
Modest market share gains will help. But the pricing needed to get those share gains is a concern. Remember, the post-Q1 plunge came in large part due to AMD’s gross margin guidance, which raised fears of a race to the bottom in pricing and lower margins for AMD stock longer-term.