Advanced Micro Devices Stock Looks Exhausted

I like to buy a great company at a good price; right now, AMD stock doesn't fit the bill.

If you were watching the financial news on July 31, when the second-quarter earnings results caused a 10.1% slide in Advanced Micro Devices (NASDAQ:AMD) stock, then you’ll understand why investors are nervous about this well-known chipmaker. A single day saw a $3.76 billion reduction in the company’s market cap, and nobody wants to catch a falling knife even if it’s a knife they recognize and respect.

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I’m usually a “buy low, sell high” kind of investor, but a number of factors have put me on the side of the majority when it comes to Advanced Micro Devices stock: the risk-to-reward ratio doesn’t seem favorable to me at the moment, and as I see it, the bears have too much evidence on their side to justify taking a long position in AMD today.

This Is No Time to Get Greedy with AMD Stock

Don’t get me wrong — I like a stock with upward momentum as much as anybody, but there comes a time when the company just looks like it’s running out of gas. The AMD stock price started this year in the $18-range and rocketed up to the $30-range, providing outstanding returns for the so-called “momo” traders; lately, however, the “momo” has turned into “no-go” as the trajectory is flattening out and I believe it’s because the smart money is taking profits.

When we examine the pace of AMD stock’s incredible gains, a reasonable investor would have no qualms about cashing in their shares. Think about it: the AMD stock price is up 180% since January of 2018, has increased at least 80% for two consecutive years, and recently attained its highest price in 13 years — all during a time when the broader semiconductor sector has mainly experienced moderate growth.

As they say, “Bulls make money, bears make money, pigs get slaughtered.” There’s growth and then there’s unsustainable growth, and given the angle of incline of Advanced Micro Devices stock, I’m in no mood to pig out on AMD shares.

An Analyst Stays on the Sidelines With AMD Stock

Evidently I’m not alone in my cautious stance, as Piper Jaffray analyst Harsh Kumar recently assigned AMD stock a neutral rating and a conservative price target of $33, implying only moderate growth over the next 12 months. In defense of this position, Kumar aptly cited the fact that the AMD stock price has increased 69% so far this year, while the semiconductor sector hasn’t even gained 30% during that time frame.

Not that Kumar is leaning bearish on Advanced Micro Devices stock — on the contrary, the analyst views AMD as having an “exciting” and “innovative” product portfolio which “should drive gross margin leverage and provide operating leverage as revenue growth outpaces operating expense growth.”

On the other hand, Kumar’s caution stems from a number of factors, including the sheer fatigue of the share price after a relentless bull run as well as the company’s vulnerability to Sino-U.S. trade tensions: “Given the stock’s recent appreciation… and the current macro/geopolitical environment, we see the stock as more or less fully valued.”

To be frank, I don’t expect the trade war to continue indefinitely; neither side is particularly interested in pursuing this experiment in brinksmanship to its most politically inexpedient conclusion. Until the tariff tug-of-war is at least brought to a detente, however, I find myself taking sides with Kumar in his reluctance to throw caution to the wind and recommend a long position in AMD stock amid a painful, protracted international trade conflict.

The Takeaway on Advanced Micro Devices Stock

Greed kills, and buying AMD stock in a market environment that’s concurrently tense and richly valued is, in my ever-humble opinion, just asking for trouble. And if you’ll indulge me in a brief musical conceit, I’d like to end this piece with a stanza from Kenny Rogers, whose classic tune “The Gambler” is as applicable to AMD stock today as it is was to high-stakes poker in 1978:

You’ve got to know when to hold ’em
Know when to fold ’em
Know when to walk away
And know when to run.

As of this writing, David Moadel did not hold a position in any of the aforementioned securities.

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