Advanced Micro Devices (NASDAQ:AMD) stock has been red-hot. It jumped from a low near $27.50 in early October to $42 last week, although AMD has subsequently dropped to $38.50. In other words, Advanced Micro Devices stock has rallied 40% in about six weeks. Talk about an incredible run!
In back-to-back sessions, AMD stock price lost its momentum near the $42 mark. However, that hasn’t stopped some analysts from predicting a run to $50 or more.
Lately, there have been several calls by analysts for a rally into the upper-$40s. But two calls stand out the most. That’s RBC Capital Market’s price target of $50, issued on Nov. 15, and Rosenblatt’s $52 price target, established on Nov. 18. To get to $50, Advanced Micro Devices stock needs to rally over 30% from its current levels.
Can AMD do it?
Trading AMD Stock
The $34 to $35 area had been resistance for quite some time, dating back to 2018. In October, Advanced Micro Devices stock was finally able to push through that mark. After doing so, the stock rallied to $37 and then pulled back.
The pullback was very telling, though, as AMD stock price found support at $35.50, its old 52-week high reached in August. On the chart above, the purple arrows highlight that retreat.
After twice failing to push through $42, Advanced Micro Devices stock has lost some steam. With such an elevated RSI reading — which measures how overbought and oversold a stock is — it’s no wonder that AMD stock price is weakening.
The question is, when will buyers step back in?
With the recent breakout of Nvidia (NASDAQ:NVDA) and with the PowerShares QQQ ETF (NASDAQ:QQQ) reaching new highs, AMD may not remain under pressure for long.
The stock has a steep uptrend mark (depicted by the blue line) that comes into play near $39. While that may or may not act as support this time around, it’s too steep to remain in play indefinitely. If it fails sooner rather than later, look for the shares’ 20-day moving average to give AMD stock a boost.
Ultimately, it would be healthy to see Advanced Micro Devices stock decline to the $34.30 to $35.50 area and again find support in that area. A move above $42 would put $50 on the table, although it will still have a ways to go before getting there.
It’s worth mentioning that AMD stock does have the 123.6% Fibonacci extension at $47.87 at this time.
Valuing Advanced Micro Devices Stock
Helping fuel the move higher is an improvement in the company’s fundamentals. Simply put, almost all aspects of Advanced Micro Devices’ business are continuing to improve.
Its revenue and earnings continue to grow, its debt continues to shrink and its products keep getting better. Its product enhancements have allowed it to compete more effectively with Nvidia and Intel (NASDAQ:INTC), as consumers begin to consider AMD a viable alternative in some areas.
Not to mention, the company is growing. Recently, I wrote about Nvidia stock being embraced by investors again. The company is finishing up a tough year in terms of revenue and earnings, both of which declined year-over-year, due to the crypto fallout. However, in its upcoming fiscal year, Nvidia’s sales and earnings will resume growing.
Like Nvidia, AMD was negatively impacted by the crypto collapse. However, unlike Nvidia, AMD’s top and bottom lines rebounded this year. AMD’s revenue and profit growth is expected to accelerate next year.
Analysts, on average, expect its revenue to rise 3.7% this year. While that doesn’t sound too exciting, keep in mind that the revenue of both Intel and Nvidia is expected to grow more slowly. Plus, AMD’s earnings should rise almost 35% in 2019. In 2020, analysts, on average, expect its earnings to climb 75% and predict that its top line will surge 27%.
So while Advanced Micro Devices stock may be more expensive on a traditional valuation basis than its peers, keep in mind that its growth is superior to them and accelerating.
If my predictions about the stock’s support prove to be accurate, look for the rally of Advanced Micro Devices stock to possibly continue, particularly if it can climb above $42.
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.
