Advanced Micro Devices (NASDAQ:AMD) goes into earnings at a crucial time. AMD stock has returned to the $34 per share level. The equity reached that price point last September before a massive pullback.
Now, with the AMD stock price returning to that level, the semiconductor firm faces a critical juncture. The second-quarter earnings report, which comes out July 30 after the bell, could determine the near-term destiny of Advanced Micro Devices stock. Investors should consider the meaning of this possible price ceiling and trade accordingly.
This $34 level has become critical for Advanced Micro Devices stock over the last year. AMD peaked at $34.14 per share on Sept. 13 before last fall’s market decline. By Oct. 30, it had fallen as low as $16.17 before its recovery finally began.
Advanced Micro Devices Is Not Yet Over the Chip Glut
While I believe in AMD stock in the long term, in the short run, it has become something unexpected — a gamble. This will become apparent after the July 30 quarterly report. Analysts forecast earnings of 8 cents per share, down from 14 cents per share in the same quarter last year. They also predict revenues of $1.52 billion. This represents a 13.2% drop from the Q2 2018 figure of $1.76 billion.
The entire semiconductor industry has experienced a chip glut brought about by last year’s decline in crypto. Like other tech companies, the U.S.-China trade war has also levered additional uncertainty. However, most see this drop as temporary, and it brings about no further concerns.
The Bulls Should Win in the End
Still, believers in Advanced Micro Devices stock have multiple positives on which they can hang their hat. This comes in large part from the leadership of CEO Lisa Su. As Nicolas Chahine mentions, AMD has outperformed its competitors “by a long shot.” He believes the AMD stock price will go north of $50 per share.
The days of playing little brother to Intel (NASDAQ:INTC) have also ended. As our own Chris Lau pointed out, AMD has introduced its 7 nm Zen 2 architecture, which comes out in September. Intel still faces delays in launching the 10 nm Cannon Lake chip.
AMD also poses a serious challenge to Nvidia (NASDAQ:NVDA). Whether AMD or Nvidia holds the lead in graphics chip depends on its type and purpose. However, even when AMD does not have the technical advantage, it is not far behind its rival.
Should I Buy AMD Stock Before Earnings?
For the above reasons, I do not object to long-term investors buying Advanced Micro Devices stock before earnings. The forward price-to-earnings (P/E) ratio of 33 comes in significantly higher than Intel. Still, with that multiple buying growth estimated at 41.3% this year and 58.5% the next, I see AMD as expensive but worth it.
However, the $34-per-share price level may have become an inflection point. More than anything, investors probably want news that will take and keep AMD stock well above that price. I believe if the earnings report does not deliver positive guidance, AMD could head down in the near term. I do not see it losing more than half of its value over a six-week period again. However, bad news could leave it languishing for the time being.
Due to this factor, I would recommend only a partial position now. If earnings help AMD stock fully break the $34 price ceiling, investors can enjoy some of the benefits. However, if profits, revenues, or guidance disappoints, investors can buy more shares for less at a later time.
Still, its cutting-edge products and massive growth should take AMD stock past Chahine’s target of $50 per share. The only questions now are when and how fast?
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.