Advanced Micro Devices (NASDAQ:AMD) stock is up over 66% in 2019. This is higher than rivals Nvidia (NASDAQ:NVDA) at 36.6% and Intel (NASDAQ:INTC) at 14.1%. AMD stock is also outpacing at least one popular sector exchange-traded fund, the VanEck Vectors Semiconductor ETF (NYSEARCA:SMH) is up about 40%. AMD stock is also besting the S&P 500 index, which is up 20% in 2019.
However, the semiconductor business is notoriously cyclical. Plus, AMD stock has been trading in a tight range for the entire summer. As fall approaches, the smart play may be to place strategic option contracts that will help you take advantage of short-term price movements.
Softer Revenue Growth Is Not Unexpected
Prior to the second quarter of 2019, AMD posted soft revenue growth (on a sequential basis) for the prior three quarters. However, on a year-over-year basis, the Q2 results still showed a double-digit revenue decline. Furthermore, analysts suspect that the company will likely face declining revenue due to softness in gaming consoles that could affect its revenue for the rest of 2019.
For its part, AMD has cut its revenue guidance into the mid-single digits for YOY growth rate. AMD is scheduled to report Q3 earnings on October 29. Analysts are projecting an 8.9% increase in revenue to $1.8 billion.
This is not completely unexpected. AMD has not had new products to get investors excited. But that story looks to be changing.
New Product Launches Sound Likely
One of the factors depressing AMD stock has been a product line that is growing long in the tooth. AMD’s 400 Series Polaris line of graphics processing units (GPUs) hit the market in 2016. A refreshed 500 Series was introduced in 2017.
However, in 2019, rival Nvidia released a competing GPU, the GTX1660 that is helping NVDA rapidly gain market share in the gaming space. A refreshed line of Navi GPU cards, priced competitively at under $250, should help AMD recapture some of this lost share.
In the CPU market, the tech publication Techquila reported that AMD has plans to release new 7-nanometer products in the second half of 2019. The first product to launch will be its Ryzen 9 3950X desktop CPU (scheduled for September 30).
Then in early October, it plans to launch its third-generation Threadripper CPU line-up (extending to as many as 64 cores). These come on the heels of the Rome EPYS server CPUs in August. These new processors are generating high demand from enterprise and cloud customers (and are potentially stealing market share from Intel).
There is Real Growth for AMD Stock Coming in 2020
This sets up well for AMD stock. Wall Street analysts are extremely optimistic about the company’s 2020 revenue growth. They expect its revenue to grow more than 24% next year.
What’s next for AMD stock?
Advanced Micro Devices stock is just coming down from its 52-week high of $35.55. And the company’s forward price-earnings ratio of just under 29 makes the stock expensive. However, AMD is projecting earnings increases of 37% for 2019 and 68.3% in fiscal 2020 which could account for the elevated ratio.
The question for investors is whether the new product launches and higher revenue growth can generate enough momentum to push the AMD stock price higher. Right now, many investors seem to be in “wait and see” mode. That makes some sense. Why buy the stock now if the real growth won’t occur until 2020?
However, between now and then, there could be a lot of macro-economic catalysts that may give the stock a boost. The Federal Reserve is cutting interest rates. And there may be a breakthrough, or at a least a continued pause in the ongoing trade war with China. And for its part, AMD must post numbers that show the high demand for their servers is not an anomaly.
This is where trading options on AMD stock can be an effective trading strategy. Sell puts at a price slightly below the current price and place call slightly above the current price. The puts pay you for buying the stock. In the case of the calls, you can get a weekly or monthly premium.
As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.