Shares of Advanced Micro Devices (NASDAQ:AMD) are flying higher on Thursday, two days after the company reported earnings. After rallying almost 20% on Wednesday, AMD stock jumped another 7% or so before hitting $25. This one has been on fire and certainly deserves a deeper look.
On Monday before the open, Nvidia (NASDAQ:NVDA) announced that its revenue would come in notably below expectations and that gross margins would be pressured. Shares fell about 14% on Monday, just a day ahead of when AMD was going to report earnings on Tuesday after the close.
As such, it’s no surprise that AMD shares were also under pressure Monday and Tuesday, given the negativity from Nvidia and similarity between the two. Nvidia blamed weakness in China as the reason for its fourth-quarter weakness and given that AMD also does a lot of business in China (although not as much), investors figured it could be in a similar situation.
It was not.
AMD Earnings
Instead of disappointing investors, AMD stock has done anything but as shares have been exploding higher. If investors saw the initial headlines and then waited until Wednesday’s close to see how AMD stock did, they were likely surprised. Up ~20% on an in-line earnings result and a miss on revenue expectations? Further, AMD said it expects first-quarter revenue of $1.2 billion to $1.3 billion while consensus expectations were $1.47 billion.
Where’s the optimism coming from?
I think the optimism is a multi-fold explanation. First, it wasn’t an Nvidia disaster. That’s got bulls optimistic and bears running for cover, a dynamic that’s accelerating as AMD stock surges higher. Further, while the company is guiding for a weaker-than-expected first quarter, it’s more optimistic on the rest of the year. Investors can look past a quarter or two of weakness, but would not be so receptive of AMD had its full-year guidance disappointed. Here’s what the company said:
“For full year 2019, AMD expects high single digit percentage revenue growth driven by Ryzen, EPYC and Radeon datacenter GPU product sales as the Company ramps 7nm products throughout the year. AMD expects non-GAAP gross margin to be greater than 41 percent for 2019.”
With AMD products continuing to gain market share and earnings, revenue and cash flow continuing to move from the lower left to the upper right, CEO Lisa Su is clearly doing a good job. Expectations for stabilization in AMD’s business this year has investors excited.
Trading AMD Stock
So let’s look at how to trade Advanced Micro Devices stock. With the stock’s two-day surge, AMD stock is easily breaking out over $24. We outlined this level just the other day as a possible upside target. Apparently, it wasn’t high enough.
Now over $24, investors who have been long as a trade may consider using the $23 to $24 level as a possible stop-loss. Some may even use $22, in order to allow AMD stock to consolidate a bit after this big move and giving it enough cushion to do so.
With AMD through resistance, it technically has some blue sky ahead of it, although shares have already traveled a long way in a short period of time. That obviously makes it hard to be a buyer going into the weekend. Worth noting is that the 50% Fibonacci retracement from September’s highs to the recent low in December sits right at $25.05. Its 61.8% retracement sits up at $27.23, which may serve as an upside target should AMD stock continue to rally.
Let’s watch AMD on Friday, as well as in the first few days of next week to see what kind of action we get. Where does it consolidate and what levels bring in buyers? That’s what we’ll have to see in the coming days but make no mistake, AMD is a buy-on-dips candidate now.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, he was long NVDA.
