Advanced Micro Devices (NASDAQ:AMD) stock has been holding up pretty well lately. That’s despite all of the trade-war talk that’s infused quite a bit of volatility into the market. It’s not that AMD stock has been immune by any means, but technically speaking, it’s traded pretty well.
AMD stock was about flat on Friday, even after Nvidia (NASDAQ:NVDA) reported its earnings. However, Nvidia, AMD, Intel (NASDAQ:INTC) and others were not exempt from pressure on Monday. The semiconductor space, including AMD stock, was under pressure on worries about an escalating trade war between the U.S. and China.
Before we get any further, let’s look at a chart of AMD stock and see what’s going on.
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As you can see, Advanced Micro Devices stock price topped out at $29.95 in early April. A few days later, it tried to advance beyond that level and failed. Since then, it’s been falling in a downward channel. AMD stock tried to break out of channel resistance on Friday, but failed to do so.
What is likely to happen to Advanced Micro Devices stock price going forward?
The 50-day moving average continues to be support for AMD stock. This level (highlighted with purple arrows) has been both support and resistance over the last six months. I want to see if it continues to act as support. If it does and AMD stock price can break out over channel resistance, Advanced Micro Devices stock price could make a run at $30.
If AMD stock price falls below the 50-day level, channel support will again be called in to save the stock. By then though, the 38.2% Fibonacci retracement level near $26 may be tested once more. If AMD stock falls below that level, $25 is on the table. If selling pressure continues, we could see a test of the 200-day moving average, which is now near $23.75.
I know this seems like a lot of levels, prices and moving averages. But the concept is actually quite simple. It comes down to how AMD stock does with the 50-day moving average. If that support holds, AMD stock price will test channel resistance. If the support doesn’t hold, it will test channel support. If either level is broken, the stock’s move could accelerate .
Finally, it’s worth pointing out that the MACD (depicted by the blue circle), which measures momentum, is beginning to swing in bulls’ favor.
Valuing Advanced Micro Devices Stock
Those who were bearish on AMD stock over the years used to point to two things: Its balance sheet and its net income. Essentially, Advanced Micro had too much debt and no profits.
That’s all changed, though, and those shifts are a big part of the reason for the rally of AMD stock price from single digits to about $27 in a relatively short period of time. Now that the rally has become sustainable, though, investors are buying and willing to hold AMD stock.
Long-term debt sank 45% from year-end 2015 to year-end 2018, to $1.12 billion. Net income went from a loss of $33 million in fiscal 2017 to a profit of $337 million in fiscal 2018. Keep in mind that, in 2016, AMD lost almost $500 million.
Last year, its earnings per share came in at 46 cents. For 2019, analysts, on average, expect AMD to generate EPS of 65 cents. In 2020, its EPS is expected to jump all the way to $1. So while the valuation of AMD used to be high, its valuation is quickly falling to more reasonable levels. It now trades at 41 times this year’s average EPS estimate and about 26 times next year’s consensus earnings estimate.
While that may not be as low as Nvidia and Intel, AMD’s top and bottom lines are expected to grow more quickly this year and next year than the other two companies. At the end of the day, there are reasons to like AMD stock for the long term, even if the industry is facing short-term headwinds.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long NVDA.
