It was a fun ride up, but Advanced Micro Devices (NASDAQ:AMD) is already on the way back down. AMD stock ripped higher to start the month, racing from $27.50 at the start of June to $34.30 just last week.
That’s a more than 24% rally in just a few sessions! But just like that, AMD stock has given back most of those gains, falling 15% in five days. It’s got a number of investors asking, “Now what?”
The company announced new chips during the E3 video game conference. Additionally, it was announced that the next-gen Xbox console from Microsoft (NASDAQ:MSFT) would also carry AMD chips. There’s also the mobile tie-up with Samsung (OTCMKTS:SSNLF) that sent shares ripping.
In short? There have been a lot of positive catalysts for the company lately and management has shown that it can get the job done. There have been doubts all along AMD’s run from $2 in 2015 to the recent high above $34. But so far those doubters are turning out to be long-term losers. I think AMD can keep proving those doubters wrong.
While it will remain a volatile stock, AMD has been one to buy on major dips. Let’s take a closer look.
Valuing Advanced Micro Devices Stock
I really like Nvidia (NASDAQ:NVDA) over the long term. The company has the best GPUs and makes top-of-the-line products. Not long after AMD introduced the Radeon RX 5700 XT and RX 5700 GPUs (its new chips to compete with Nvidia) reports emerged of Nvidia having a new set of chips too. The company’s reported “Super” line of GPUs crushed the market yet again.
And that’s just on the GPU front. Never mind the continuous flow of other news, whether it’s ray tracing or advances in autonomous driving. But is this to say that Nvidia is a better pick than AMD?
Not necessarily.
Over the long term, I believe NVDA and AMD will both be big winners as technology continues to improve. That said, AMD is winning the short-term battle. Over the past year, AMD is up 82%. Nvidia stock is down 44% in the same span. The year-to-date is a thumping too, with AMD up 61% to NVDA’s 10% advance.
So it’s not just AMD’s run from $2 to $20+ that’s fueling these big percentage gains. AMD is here and it’s here to stay.
Plus, the numbers make sense.
Current estimates call for revenue growth of 6.2% this year and 21% next year. That’s alongside estimates for almost 40% earnings growth in 2019 and 56% growth in 2020. Not only is it impressive to see accelerating growth from 2019 to 2020, but it’s even more impressive when considering the growth rates vs. its peers. Estimates for both metrics in both years top the growth rates from both NVDA and Intel (NASDAQ:INTC).
Trading AMD Stock
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The financials and the technological trends for AMD check out, but what does the chart look like?
As we pointed out at the top of the article, we’ve seen a quick 15% haircut in AMD’s stock price. That’s giving investors an opportunity to get long this name at more advantageous prices.
While AMD broke below the 20-day moving average on Monday, it quickly reclaimed it on Tuesday. Although it’s off its session highs — rallying over 5% at one point — the move was powerful. A tweet from President Trump hinting at a possible trade-war resolution woke up the chip space. If it comes to fruition, we will see these stocks fly higher.
The Bottom Line on AMD Stock
For now though, AMD stock is holding its 50-day moving average and uptrend support. Back over $30 and the 20-day moving average bodes well for bulls, although volatility is almost always present in a name like this.
Against the $29 breakout, I feel comfortable owning Advanced Micro Devices stock. For those that can withstand a bit more heat, they can own AMD against the rising 50-day moving average.
If the markets cooperate and the narrative around trade improves rather than worsens, it’s not unreasonable to believe AMD can return to $33+ in the near term. Although it’s also clear that $33.50 to $34 is resistance at the moment.
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 and AMD.
