Well, before the world had ever heard of r/WallStreetBets — the Reddit forum that’s setting the financial markets ablaze — there was Advanced Micro Devices (NASDAQ:AMD). You see, five years ago, AMD stock was trading hands in low-single-digit territory. And by low, I mean below $2. But then, it would prove all doubters wrong by engineering what can only be described as a remarkable business turnaround.
It’s too early to tell what defining impact r/WallStreetBets will have on its corporate targets. Sure, its efforts to engineer a short squeeze in the publicly traded firms featuring the most negativity by major hedge funds has at least temporarily worked wonders. But the huge downfall in these apparent rags-to-riches-to-rags leaves a question mark on vitality.
Obviously, that’s not the case with AMD stock. Over the trailing five years, shares have gained nearly 4,350%. Better yet, these profits were sustained, sparking fundamental changes in the semiconductor industry. Today, you might be able to get away with calling Intel (NASDAQ:INTC) the poor man’s AMD. It used to be the opposite way around.
Curiously, though, AMD stock isn’t off to the most auspicious start this year. While the situation could change by the time you read this, the fact is, in January, AMD shed more than 7% of market value.
Interestingly, InvestorPlace contributor Chris Tyler noted the pensiveness in the price action of AMD stock. While Tyler notes the fundamental strengths of a core holding like Advanced Micro, there are some negative signs to watch out for.
Personally, I see shares going either way. But that’s not the topic at hand here. Instead, I believe AMD offers an interesting case as a barometer for Bitcoin (CCC:BTC-USD). Anyone interested in cryptocurrencies should consider the compelling data below.
Why AMD Stock May Be Screaming ‘Buy’ for Bitcoin
First, let me get something out of the way. I’m a big believer in the increased integration of cryptocurrencies and its disruptive potential. So, when I say that AMD stock is a barometer for Bitcoin, there is an element here that appears self-serving. Definitely, I benefit when the crypto complex does well, so I just want to disclose this in the spirit of full transparency.
Nevertheless, I believe the technical phenomenon speaks for itself. It appears that ahead of two major waves in the Bitcoin price (along with other cryptocurrencies), AMD stock jumped first.
You’ll recall that Bitcoin really captured the public’s imagination as a potential digital safe haven, a benchmark of value for a new generation of investors back in 2017. In March of that year, BTC could be bought for roughly $1,000. In December, it averaged around $14,000, but hit a then all-time high of nearly $20,000.
But before that craze, AMD stock had a tremendous rally in 2016. And between August 2016 and February 2017, AMD shares nearly doubled, from $7.40 to $14.46. Afterward, shares began to correct, while Bitcoin went on its 2017 moonshot rally.
Let’s fast forward to September 2019. Back then, AMD stock averaged just under $29. Later, in August 2020, it reached an average price of $90.82, yet another robust and remarkable rally. However, this apparently signaled the present Bitcoin rally, which saw an average price of under $11,000 in September 2020 skyrocket to $35,500 in January and early February.
Admittedly, you can write this off as a coincidence. Certainly, I wouldn’t suggest buying an asset based exclusively on technical phenomenon. You have to consider the broader fundamental picture and understand the risk-reward profile before diving in.
Nevertheless, it does give encouragement to those who are “HODL”-ing cryptocurrencies, as the kids say.
Speaking of Fundamentals
While we’re on the topic of fundamentals, I should note that there is a logical case for why AMD stock seemingly is signaling a buy for Bitcoin. As you know, AMD, along with rival Nvidia (NASDAQ:NVDA) is a favorite manufacturer of crypto-mining GPUs (graphics processing units) among hardcore blockchain enthusiasts.
I discussed this point in greater detail for an article on Canaan (NASDAQ:CAN). In a nutshell, the difficulty or the energy spent on cracking algorithmic problems to extract blockchain reward tokens goes up or down depending on underlying market conditions.
Theoretically, a lower difficulty should always precede higher cryptocurrency prices. It suggests that true advocates recognize the fundamental opportunity of this sector and are advantaging lower mining difficulty in anticipation of a massive price spike.
That would imply more sales of AMD processors, which should lift its stock price. And the increasing engagement of cryptocurrencies eventually results in the entire sector mooning.
At least, that’s what I like to tell myself.
On the date of publication, Josh Enomoto held a long position in BTC.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
