Advanced Micro Devices (NASDAQ:AMD) is expected to report Q3 earnings on Oct. 23. And it looks as though at least some investors are betting on a better than expected showing from the company. After a slump that saw AMD stock lose 17% since early August, it popped 4.8% on Friday, and closed at $30.53 for another 2.6% gain on Monday. Given its underwhelming guidance for Q3 revenue, what’s with the sudden optimism about Advanced Micro Devices stock?
Two factors are at play here: laptops and China.
China Trade Deal Announcement Good News for AMD Stock Price
As InvestorPlace’s Luke Longo points out, the Chinese market is an important one for Advanced Micro Devices. China accounts for roughly 30% of AMD’s revenue, and the company had been growing that business at a brisk pace — at least until the trade war broke out between the U.S. and China. Tensions between the two countries which erupted into spats of tariffs have hit many stocks this year, and AMD has not been immune from that effect.
On Friday, President Trump announced the U.S. had reached a “very substantial phase one deal” with China. The agreement is aimed at easing trade tensions between the two countries. While finalizing the deal was expected to take an additional three-to-five weeks, in the meantime, the U.S. agreed to delay the additional 25% to 30% increase in tariffs scheduled to to go into effect this week.
News of the progress in negotiations between the two countries was a boost to the markets in general — the Nasdaq Composite got a 1.3% bump on Friday — but tech stocks with large exposure to the Chinese market performed particularly well. As such, AMD stock was up 4.8%, while graphics chip rival Nvidia (NASDAQ:NVDA) was up 1.6% on the day.
AMD’s Makes Progress in Laptop Market
AMD has been making impressive gains against Intel (NASDAQ:INTC) in the laptop market. In Q2, Advanced Micro Devices grew its market share from 8.8% in 2018 to 14.1%, outpacing its growth in the desktop PC market. Considering that laptops outsell desktops by a wide margin (162.3 million to 94.4 million in 2018), this is good news for AMD stock.
Adding to its momentum, at Microsoft’s (NASDAQ:MSFT) big Surface event, it was revealed that the new high performance 15-inch Surface Laptop 3 is powered by a customized AMD Ryzen chip instead of an Intel Core processor. Following that announcement, China’s Xiaomi revealed its newest RedmiBook ultra-portable laptop will ditch Intel processors in favor of an AMD Ryzen mobile chip.
When it comes to laptops, AMD is on a roll.
Takeaway for AMD Stock
The trade deal with China would be a significant boost for Advanced Micro Devices, but the papers have yet to actually be signed. By Monday, doubts were being raised about whether that will happen. The laptop wins have been big for AMD, but Intel’s new 10th gen Core mobile processors are starting to show up in laptops and that could slow AMD’s growth. In the meantime, AMD’s Q3 earnings are fast approaching and the company’s guidance of $1.8 billion in revenue was well below the $1.95 billion analysts were looking for.
If everything goes right for AMD, the recovery for Advanced Micro Devices stock could gain steam. However, there are still too many variables that could send it in the opposite direction. Analysts are a little more bullish on AMD stock than they were several months ago, but the majority still rate it as a “Hold.” And with an average 12-month target price of $32.95, there’s not a ton of upside.
If you are considering an AMD investment, either buy now in anticipation of the China deal being inked and better than expected Q3 earnings … or wait a few weeks with the assumption that the current AMD recovery will stumble.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.