The Smart Way to Buy Advanced Micro Devices After Earnings

  • Advanced Micro Devices (AMD) shares jumped 9% on better-than-expected earnings and a less hawkish tone from the Federal Reserve.
  • The outsized gains have spectators wondering if the worst is over and if it’s time to bottom fish the fallen angel.
  • Directional trades remain tricky, but cash flow strategies on AMD stock could be worth a shot.
Sign of AMD office in Markham, Ontario, Canada. Advanced Micro Devices, Inc. (AMD) is an American multinational semiconductor company.

Source: JHVEPhoto / Shutterstock.com

It may not seem like it based on the 9% advance, but Advanced Micro Devices (NASDAQ:AMD) actually took investors on a wild ride Wednesday. AMD stock leaped out of the gate on the back of an earnings hat trick. The company beat on the top and bottom lines while raising forward guidance.

The upbeat forecast set AMD apart from the likes of Intel (NASDAQ:INTC), which offered disappointing forecasts during its report. Despite the strong open, AMD stock quickly reversed, nearly filling its 8% gap ahead of the Federal Reserve meeting.

But what could have been an ominous bearish reversal was rescued by Fed Chair Jerome Powell in its post-meeting presser. As widely expected, the Federal Reserve raised interest rates by half a percent. More importantly, Powell laid to rest concerns of an even larger rate hike next month.

With that, a market bracing for the worst went wild. AMD stock capitalized on the buying bonanza, reclaimed early-morning losses and finished up over 9%.

Let’s take a closer look at the earnings report. Then I’ll break down the AMD stock price chart and explain why bulls still face an uphill battle.

AMD Advanced Micro Devices $94.53

Advanced Micro Devices Smashed Earnings

AMD released its first-quarter numbers on Tuesday and gave shareholders something to cheer about. Earnings per share came in at $1.13 versus 91 cents expected, marking a 117% year-over-year increase.

Revenue ballooned to $5.89 billion, topping the $5.52 billion expected. This marked a 71% increase compared to the year ago quarter. The company anticipates $6.5 billion in sales for the second quarter, which is well above analyst forecasts of $6.38 billion.

Advanced Micro Devices hit all the right notes, giving plenty of evidence to support buying shares. Unfortunately, the solid fundamental backdrop is competing with souring sentiment and troublesome technicals on AMD’s price chart.

AMD Stock Needs Time

Advanced Micro Devices (AMD) stock chart is trying to bottom after earnings.

Source: The thinkorswim® platform from TD Ameritrade

Despite earnings and sales growth continuing to dazzle, AMD’s share price has fallen nearly 50% from last year’s peak. Red-hot inflation and the accompanying upward pressure placed on interest rates have investors re-pricing growth stocks.

The negative sentiment surrounding Russia’s invasion of Ukraine isn’t helping matters, either. Given the drubbing suffered over the past six months, it will take more than a single thrust to reverse the trend.

In fairness to the bulls, yesterday was impressive. Returning to close at the high of the day after falling so far in the morning was an intraday reversal for the history books. Moreover, volume ballooned past 225 million shares to show significant buying pressure. AMD stock closed above the 20-day moving average and a short-term resistance zone.

Unfortunately, many bearish arguments remain in play. First, the downswing preceding this week’s rally carried the downtrend to a new low on increasing momentum. Second, the 20-day and 50-day moving averages are still gliding lower.

Third, we’ve seen three previous bounce attempts fail in recent months. And finally, we didn’t see any immediate follow-through Thursday morning. Therefore, we need time and more bullish price action to signal that a sustained trend reversal is forming. I’m not a fan of aggressive directional plays here for these reasons.

How to Trade AMD Stock Now

The higher probability and smarter way to wade in is with a cash flow-based options strategy that will still profit if AMD doesn’t see substantial upside. Selling puts is my favorite play here. Because of this morning’s weakness, I would wait for an up day before pulling the trigger.

The Trade: Sell the June 10 $80 naked put for $2.

Consider this a bet that AMD stock stays above $80 for the next month. If it does, you’ll pocket the premium received. If it doesn’t, you’re on the hook for buying shares at $78.

On the date of publication, Tyler Craig was LONG AMD. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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