October will be a busy — and possibly volatile — month for many tech stocks including chip designer Advanced Micro Devices (NASDAQ:AMD). Many outlets estimate that AMD will next release earnings Oct. 23.

Year-to-date, AMD stock is up about 65%. In comparison, the iShares PHLX Semiconductor ETF (NASDAQ:SOXX) is up 38%. However, in recent weeks, AMD stock seems to be running out of steam. Therefore, many investors are now wondering if Advanced Micro Devices could rise even further in the last quarter of the year.

In the long term, I believe AMD stock price is going increase much more. Nonetheless, in the short term, there will likely be headwinds that investors should not overlook. Thus, I would encourage long-term investors to wait several weeks before buying AMD stock or hedge their positions if they currently own the stock.

The Next Earnings Report

In 2019, Advanced Micro Devices launched a robust range of products which Wall Street and AMD customers liked. Yet the group has a history of reporting mixed results. When AMD posted earnings on July 30, it was a similar story as management cut its full-year guidance.

In the earnings report, Wall Street paid attention to two segments: 1) computing and graphics and 2) enterprise, embedded and semi-custom.

Advanced Micro Devices reported earnings that met expectations amid U.S.-China trade war constraints. The group’s net income was $35 million, or 3 cents a share, compared with $116 million, or 11 cents a share, in the year-ago period.

The computing and graphics segment revenue was $940 million, down 13% year-over-year and up 13% quarter-over-quarter. Computing and graphics revenue was lower year-over-year, primarily due to lower graphics channel sales. The quarter-over-quarter increase was primarily due to higher GPU sales.

Enterprise, embedded and semi-custom segment revenue was $591 million, down 12% year-over-year and up 34 percent sequentially. The year-over-year revenue decrease was primarily due to lower semi-custom product revenue. The quarterly increase was driven by higher semi-custom and EPYC processor revenue.

Overall many analysts saw the second-quarter earnings report as a sign that AMD is executing its strategic plans well. Since late 2014, under the leadership of CEO Lisa Su, revenue has increased and the company has improved its balance sheet. It has also reduced debt considerably. Over the next five years, analysts expect AMD to grow earnings by about 30% annually.

When AMD reports later in October, Wall Street is likely to look at how trade wars may be impacting the bottom line and company outlook.

What Could Derail AMD Stock?

In July, AMD’s Q3 revenue outlook fell below the Wall Street consensus because of weaker-than-expected console sales. The chip maker’s Q3 revenue outlook of $1.75 billion to $1.85 billion was lower than the forecast sales of $1.94 billion.

Constantly lacking the “wow” factor in most of its earnings makes the AMD stock price vulnerable to rapid declines. Naturally, this has unnerved many long-term investors. And the markets penalized Advanced Micro Devices stock the day after the last earnings release.

Wall Street has recently been debating whether chip stocks have reached their 2019 highs. For long-term investors, such gyrations in the sector are nothing new. However, it may mean more volatility for Advanced Micro Devices stock in the near term.

In the coming weeks, if any chip company, such as Nvidia (NASDAQ:NVDA) or Intel (NASDAQ:INTC), issues a trading update or a quarterly report that includes weak guidance, then investors could easily become bearish on semiconductor stocks, including AMD.

InvestorPlace readers would be familiar with the fact that Intel dominates the central processing unit space. And NVDA has been a leader in the graphics processing unit segment. But this year AMD has been able to gain market share from both companies.

Furthermore, analysts are debating whether Advanced Micro Devices stock is becoming overvalued. For example, its trailing price-to-earnings-growth ratio is about 3.5x. However, the industry average stands around 1.9x. Similarly, AMD stocks’s price-to-sales ratio of about 5.5x is also quite high. To put the metric into perspective, the S&P 500’s average P/S ratio is 2.2x.

In summary, in the final months of the year, there are multiple pieces to the jigsaw puzzle that could affect the AMD stock price.

Oh, the Trade War …

The U.S.-China trade war is now in its second year. Wall Street is nervous that the prolonged tariff wars will continue to affect chip companies’ earnings for the rest of the year. China is the leading consumer of semiconductors, responsible for more than 50% of the global demand.

And U.S. chip companies, including Advanced Micro Devices, lead the world with a combined global market share of nearly 50%. Furthermore, many technology companies, including AMD, either have manufacturing plants or joint ventures in China. Additionally, many typically use Chinese companies in their supply chains.

Jeff Thurk, an economics professor at the University of Notre Dame, discusses in detail the impact of outsourcing production to third-party, low-cost foundries overseas.

“Firms choosing this business model lack an internal fabrication facility and are known as ‘Fabless,'” Thurk wrote in his paper. “Today, Fabless firms account for roughly 90% [of] all semiconductor firms and generate one-third of industry revenue.”

Understandably, investors now fear that American chip makers will be among the largest losers of the current trade war. During the recent second-quarter earnings release, AMD management highlighted China as a risk. At present, over 30% of the company’s revenues come from China.

The chip industry is a highly cyclical one. In case of an economic slowdown either in the U.S. or globally, AMD stock and other industry players that fight for market share would be adversely affected. Earlier in August, U.S. and global equity markets went into a tailspin when the U.S. Treasury yield curve briefly inverted as short-term yields traded above those of the long-term variety.

We will not know when the next recession has started until we are in it, but we do know that investor sentiment can change rather quickly.

Where the AMD Stock Price Is Now

Wall Street loves turnaround stories. Over the past several years, the AMD stock price has gone from $2 in early 2016 to an all-time high of $35.55 on Aug. 9, 2019.

If you are an investor who follows technical charts, AMD stock has strong resistance around $35, a level which it has not been able to pass four times between June and August. In other words, when AMD stock can reach and stay over $35, long-term investors should expect another big move up in the share price.

However, in the coming weeks, AMD stock is likely to trade within a range of about $27.50-$30. If there is a broad market decline in October, possibly similar to what we have experienced at the end of 2018, AMD stock price can easily move toward $25.

Because AMD is a momentum leader stock, investors should expect sizeable daily swings in the stock price. Technically AMD stock is known to make a series of rallies and consolidations. We can expect this trend to continue in October, too.

If you already own Advanced Micro Devices stock, you might want to stay the course and hold onto your position. Or you may consider placing a stop loss at about 3%-5% below the current price point. This strategy books the paper profits you have already made from AMD stock.

If you are an experienced investor in the options market, you may also consider using a Nov 15 expiry at-the-money covered call strategy. In that case, you may for example buy 100 shares of AMD at a limit price of $29 and sell an AMD Nov 15 $29 call option, which currently trades at $3.35.

The $29 option offers some downside protection in case of volatility and a decline of the AMD stock price. It would also enable investors to participate in a potential up move. This call option would stop trading on Nov. 15 and expire on Nov. 16