As of Monday, assets were in free-fall. Crude oil fell more than 30% at one point, volatility has been soaring and equities were crushed. Amid the chaos, Advanced Micro Devices (NASDAQ:AMD) has come under pressure as well, causing some investors to take a closer look at AMD stock.
Investors who listened to the company’s analyst event would agree that business continues hum along nicely. In fact, Advanced Micro Devices is hardly seeing an impact from the coronavirus.
At the event, management reiterated its outlook for the first quarter. They still expect revenue of $1.8 billion, plus or minus $50 million. However, they did say they expect it to be on the lower end of that amount. But it doesn’t matter, at least in the grand scheme of things.
Instead, volatility continues to drive the narrative right now. I’ve cautioned more than a few times over the past month, that once the Volatility Index (VIX) is at or above the $30 to $35 range, investors need to take caution.
When the VIX is in this condition, moves in the indices can be wild and inexplicable. In the short-term, these can have massive effects on individual stocks, including Advanced Micro Devices.
Trading AMD Stock
We’ll get to some of the positive fundamentals in a minute. For now, I want to look at the charts for AMD.
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On Friday, the S&P 500 was hammered until there was less than 1 hour of trading until the close. In that hour, equities surged higher, erasing a bulk of the session’s losses and allowing stocks to actually close higher on the week. That rally allowed AMD stock to closer higher on the day, up 1%. For the week, shares were up 6.8%.
As complex as equity markets can be, the setup for Advanced Micro Devices is actually quite simple. Shares are struggling to reclaim the $50 mark and 50-day moving average. The latter was challenged in four sessions last week, but shares simply could not reclaim it.
After Monday’s intense action, support is now being called upon again. The 100-day moving average is acting as support, as is the $41.80 to $42 area. Unfortunately, when volatility is this high, there’s no telling what will happen. If this area holds as support, it puts a rebound back up to the 50-day and $50 level on the table.
If it doesn’t? Well, then things get a bit more complicated.
Should support fail, the 200-day moving average is possible near $37. Ironically, it’s been just over a year — on March 8th — since AMD stock has tested the 200-day moving average. Below that and the $34 breakout level is on the table.
Remember, this decline isn’t about AMD. Nvidia (NASDAQ:NVDA), Intel (NASDAQ:INTC), Qualcomm (NASDAQ:QCOM) and others are going through similar pains. It’s just the way the market functions when volatility is as high as it is.
Valuing Advanced Micro Devices
I don’t know when or where AMD stock will bottom. For traders, that makes the stock a tough one to be involved in, but for long-term investors, this type of volatility often presents opportunity.
Management’s reiteration of its Q1 revenue should highlight the durability of the business, while their long-term outlook should inspire confidence. Management is looking to grow at a 20% compound annual growth rate for the next five years on the back of its data center business.
That’s music to the ears of long-term investors, as they look to shake off short-term headwinds in favor of long-term catalysts.
Analysts still expect 30% revenue growth this year and 20% growth next year. On the earnings front, estimates call for almost 80% growth this year to $1.15 per share, followed by 40% growth in 2021.
While AMD may seem expensive on an earnings basis, investors have to keep this robust growth in mind. When AMD and Nvidia were suffering from the crypto fallout last year, recall that AMD still maintained positive growth at a time when Nvidia, a fantastic company, saw large year-over-year declines in sales and earnings.
The bottom line? When the volatility index is this high, the moves in the market indices are unpredictable. That means AMD stock and others are erratic, with unexplainable rallies and falls. Investors can use the technicals laid out above to help navigate them through these tough times, but realize that its fundamentals are fine.
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.
