Hang on to your hats — the stock market’s fundamentals have been hostage to headlines for months. Most recently, the economic war between the U.S. and China took a step backwards, causing a ruckus in the indices price action. But if you believe the rhetoric, you’d think that the S&P 500 is in free fall. Well it’s not — it is 3.5% off the closing all-time high. Meanwhile, the stock prices of certain groups of stocks are feeling the pain more than others. And today we examine how Advanced Micro Devices (NASDAQ:AMD) stock shines among one of the battered segments.
Year to date, AMD is up 52%, compared to Nvidia’s (NASDAQ:NVDA) gain of 16% and the VanEck Vectors Semiconductor ETF’s (NYSEARCA:SMH) gain of 19%. Intel (NASDAQ:INTC) is down 5% for the same period. Clearly investors prefer owning AMD to its competitors and this is today’s point. Owning AMD is the best bet for the intermediate term.
The SMH world is in the middle of a tornado and not much has happened to AMD stock. Early in May I suggested you should own it, and that’s still true today.
Long term, tech stocks will be fine because we have too much demand for their products and services. The world is adopting tech at an exponential rate, and it’s a trend that will not revert any time soon.
Looking Forward in AMD Stock
Regardless of the long-term runway for chip stocks, the recent market turmoil has hit the semiconductor stocks especially hard as they sit in the line of fire between the U.S. and China. President Donald Trump recently dialed up the tariff rate on $200 billion worth of goods to 25% and, more importantly, banned Huawei from doing business with the U.S. (though that has been eased somewhat), and that’s the part that specifically hampers stocks like AMD.
The SMH fell 4% just on Monday on no specific headline. The rhetoric on chips stocks is so negative that investors are fleeing the stocks without caring about valuation.
Some stocks are faring better than others and Advanced Micro Devices stock has been the star since last year. So if my thesis is that this tariff war malaise will pass, then I want to be long AMD stock instead of INTC or others. AMD fans have proven themselves strong hands and are less eager to sell out of their positions.
Case in point, the SMH got clobbered on Monday and fell off a ledge and back to its February contention level. Whereas AMD still is higher than last week’s levels. So even though it too fell on Monday, relatively it is far out-performing the rest of the gang.
What makes this even more impressive is that AMD is probably the most expensive of its direct competitors. Its price to earnings ratio is five or ten times more expensive that say INTC or NVDA, yet here it is the one holding the best under duress.
Usually in times of macroeconomic and geopolitical risk investors sell the frothiest stocks first. But not in AMD’s case so I hold it if I am long. Conversely if I am looking to catch this falling knife of chip stocks, this is my best bet.
So is it the right time to do so? Yes, but the investor’s time frame should dictate how to do it.
For those looking to own the shares for the long term, there is no sense in looking for the perfect entry point. Over the long term, a few cents higher or lower won’t matter much. But for those who prefer to manage the short-term risk, there are lines to know.
AMD above $28 per share would bring momentum buyers to restart a rally towards $30 per share or higher. There will be resistances at $27.60 and $28.50, but with the proper help from the rest of the markets, they can do it. Conversely, below $26 the bears could gain momentum to target $24.50. This is not a forecast but one of the two scenarios that exists here.
In summary, AMD so far has withstood the pressures of the tariff war for almost two years. It is the best pick of the chip stocks regardless of fundamentals. They say that price is truth, and in this case, the price action says it’s the likely best bet.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.