The past couple of months have been good ones for Advanced Micro Devices, Inc. (NASDAQ:AMD). AMD stock is up nearly 30% since its early December low and knocking on the door of a breakout. This Tuesday’s earnings report could spark that bullish thrust.
Or it could send shares tumbling, repeating an ebb-and-flow pattern that’s been in place since the peak from early last year. It all depends on the critical fourth-quarter numbers about to be released, which, if we’re being honest, are basically a coin toss.
Here’s what you need to know if you own, or were thinking about buying, AMD shares before Tuesday’s post-close announcement.
Advanced Micro Devices Earnings Preview
As of the latest look, the pros think the company is going to report a profit of five cents per share on $1.4 billion worth of revenue. Advanced Micro Devices did $1.11 billion worth of business for the same quarter a year earlier, posting a loss of one cent per share. The projected numbers underscore a turnaround that’s been in place for about a year now, leveraging new products like the Ryzen CPU and the Vega GPU.
The timing of the much-needed new products couldn’t have been more fortuitous though. The rise of cryptocurrency mining and the advent of artificial intelligence computing — both of which require the kind of computing power graphics processors offer — are just now reaching a critical mass. Though the new technologies have proven to be more of a boon for AMD rival NVIDIA Corporation (NASDAQ:NVDA), they’ve still been a big deal for Advanced Micro Devices. Morgan Stanley recently made a point of saying it was expecting blowout fourth quarter reports for both companies, driven by growing interest in using graphics processors to mine for digital money.
If you think that rising tide outright guarantees an earnings beat, though, think again. It’s anybody’s guess as to how this will turn out, and the stock itself only adds to the risk of taking on new positions now.
At a Fork in the Road
While AMD stock may be up since early December, that rally has slowed to a crawl in recent days. The reason? A technical resistance line that extends all the way back to the middle of last year has given traders reason for pause. Further back in time we can see three different failed breakout efforts that ended with a sizable pullback. Take a look.
Click to Enlarge
It’s a conundrum for investors looking for any kind of bullish clue that the market was ready and willing to respond bullishly to whatever Advanced Micro Devices, Inc. was going to dish out on Tuesday. The market is clearly collectively hesitant headed into Tuesday’s earnings report despite the bullish rhetoric floating in the market’s ether.
It matters because talk is cheap. If traders (professional or otherwise) were truly expecting a blowout quarter, AMD stock wouldn’t be hesitant here.
The pause may also indicate that, even if the fourth quarter numbers are encouraging, the future may not be as bright as the past was. Bitcoin prices have fallen more than 40% from their December peak, with most other cryptocurrencies following that lead. Though any new crypto money still has to be mined and GPUs are still best suited to do it, the mania part of the movement may well be in the rear-view mirror. It never got a chance to pull Advanced Micro Devices out of the hole it found itself in a couple of years ago.
That’s a long way of saying a poor outlook may trump a good fourth quarter report. The numbers, oddly enough, won’t matter as much as the rhetoric on the matter.
Bottom Line for AMD Stock
As for anybody on the fence with AMD stock, this is a case where the best way to play may be to remain on the fence and not step into a short or a long trade on the stock, just because there’s so little clarity. The smart way to play it right now is by buying cheap options on both sides of the fence, or a straddle, and hoping for a lot of movement in one direction or the other. One leg of the trade will end up being a near-total loss, but the gain on the other will more than make up for it.
Too short-term? Again, if we’re being honest, anyone reading this probably isn’t thinking too far down the road.
That said, if you’re just itching to trade the stock longer-term, you’ll still get a chance to do that once the dust settles. It’s unlikely the knee-jerk reaction to the upcoming earnings news won’t invite a temporary reversal that’s just as big. That’s when you’ll want to take on your longer-term position.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.
