Advanced Micro Devices (NASDAQ:AMD) has been a captivating stock over the years, as shares leapt from penny stock status to $35.55 earlier this year. In that time, AMD stock has gone from possible bankruptcy candidate to a serious chipmaker.
Is a larger move higher coming?
AMD stock has been stuck in the doldrums over the last few months, but it wasn’t all that long ago that a major rally seemed imminent. This came as the AMD stock price slammed into the $34 to $35 area on multiple occasions between June and August.
The rally couldn’t hold, as shares are currently sub-$30. However, Advanced Micro Devices stock remains quite attractive for one reason: growth.
Valuing AMD Stock
The semi space has had a very difficult 12 months dating back to Q4 2018. That’s when AMD and Nvidia (NASDAQ:NVDA) told investors that demand from crypto miners had dried up, bloating their inventories and hurting sales and earnings. It’s also when the chip space hit a period of oversupply, where demand could not soak up excess production. Names like Micron (NASDAQ:MU) have taken a beating as a result.
When looking at Intel (NASDAQ:INTC), it didn’t get caught up in the crypto-related beatdown like AMD and NVDA. However, it’s also starved for growth, which is why it has such a low valuation.
Unlike many in the chip and memory space that are expected to post year-over-year declines in earnings and revenue this year, AMD stock is not.
Analysts expect revenue to climb 4.6% this year before surging more than 24% in 2020. On the earnings front, estimates call for 37% growth this year to 63 cents per share, and an acceleration up to 68% growth in 2020 to $1.06 per share.
The downside of all this? AMD stock price trades at about 46 times this year’s earnings. On the flip side, it trades at “just” 27.5 times next year’s earnings, which is actually pretty reasonable given the growth here.
That compares to the 33 times this year’s earnings that Nvidia trades at, despite forecasts calling for an approximate 8% decline in sales and a near-20% reduction in earnings. And while Intel stock trades at less than 12 times earnings, its growth is suffocated. Analysts expect earnings to decline 4.1% this year and rebound just 1.2% in 2020. For sales, expectations call for a 2.1% decline this year and a 2.3% rebound in 2020, essentially a wash over a two-year period.
In this light, AMD looks pretty good from a growth perspective.
Trading AMD Stock Price
To the right is a five-quarter (15-month) look at Advanced Micro Devices stock price. It clearly highlights where resistance sits, between $34 and $35.
Click to Enlarge
In other words, we have a bearish development in the short term, but a bullish overlay in the intermediate to long term.
So what should investors watch for?
Let’s see if the 61.8% retracement near $28 can remain support for AMD stock. With the 200-day moving average trending higher, one would expect this level to also act as support should shares slip lower. For bears, they will want to see both levels give way, triggering a potential move back down toward $25.
On the upside, AMD stock needs to clear channel resistance and the 20-day moving average. If it does, it puts the 50-day moving average on the table, as well as the 78.6% retracement. Over $32 puts $34+ back on the table.
To recap: Bears have short-term control, but bulls have long-term trends in their favor. The stock requires patience until either support gives way, opening up the possibility of $25, or until resistance gives way, opening up $31 to $32, then possibly $34+.
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.
