The bottom is in, and it’s finally time for Advanced Micro Devices, Inc. (NASDAQ:AMD) to head higher on reasonable expectations. For most of 2017, AMD stock was driven by lofty expectations for cryptocurrency mining demand. That bubble has finally popped for the semiconductor sector, and investors can now focus on AMD’s core product line, and value the shares accordingly.
The normalization of AMD stock’s sentiment backdrop started yesterday. Analysts at Macquarie upgraded AMD to “neutral” from “underperform” and lifted their price target to $11 from $10 on the growth potential for its server business.
This is not really a new development for Advanced Micro, as the company has signed several server-side deals to supply Epyc chips, including a cloud deal with Microsoft Corporation (NASDAQ:MSFT) and a server deal with Hewlett Packard Enterprise Co (NYSE:HPE).
Outside of AMD’s server business, the company also scored a win with Apple Inc.’s (NASDAQ:AAPL) iMac and it is working with Intel Corporation (NASDAQ:INTC) to provide a new laptop chip to power gaming notebooks.
In short, AMD stock is poised to grow solidly through 2018, with or without cryptocurrency demand — and we saw yesterday, with Macquarie’s bullish note, that analysts are finally starting to take notice.
And there is a lot of room for improvement within the brokerage community. According to Thomson/First Call, only 11 of the 31 analysts following AMD stock rate the shares a “buy” or better. The consensus price target, meanwhile, rests at $14.27 and represents a healthy premium for the AMD stock price.
Short interest also represents a potential driver for Advanced Micro stock. As sentiment worsened amid warnings of falling cryptocurrency demand for AMD GPUs, the number of shares sold short shot higher to about 21% of the stock’s total float. Should the stock finally turn higher, these bears could be forced to buy back their positions, thus adding to the Advanced Micro stock rally.
Turning to the options pits, AMD speculators are looking for a rebound heading into January 2018 expiration. At last check, this back-month put/call open interest ratio rested at 0.53, with calls nearly doubling puts among January 2018 options.
Meanwhile, January 2018 implieds are pricing in a move of about 9.8% ahead of expiration. This places the upper bound at $12 and the lower bound at about $10.
Technically speaking, AMD stock has already rebounded off support at $10 with the shares finally moving out of an oversold position. The $11 region remains a short-term concern, though a breakout here could see the shares challenge $12 and their 50-day moving average in short order.
Two Trades for AMD Stock
Call Spread: Traders looking to take advantage of a rebound in AMD stock might want to consider a January 2018 $11/$11.50 bull call spread. At last check, this spread was offered at 19 cents, or $19-per-pair-of-contracts. Breakeven lies at $11.19, while a maximum profit of 31 cents, or $31-per-pair-of-contracts — about a 60% return — is possible if AMD stock closes at or above $11.50 when January 2018 options expire.
Put Sell: For a more neutral-to-bullish trade, a January 2018 $10 put sell has an excellent chance of finishing out of the money. At last check, this put was bid at 17 cents, or $17-per-contract. As always with a put sell, you keep the premium as long as AMD stock closes above $10 when January 2018 options expire.
On the downside, if AMD trades below $10 prior to expiration, you could be assigned 100 shares for each put sold at a cost of $10-per-share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.