Advanced Micro Devices, Inc.: AMD Stock Could Get Hammered on Earnings

Advanced Micro DevicesAMD Stock Earnings Preview

Advanced Micro Devices, Inc. (NASDAQ:AMD) is expected to report second-quarter earnings after market close on Friday.

Like all publically listed companies, once a quarter, AMD stock’s management reports on the company’s earnings for the prior quarter. On a scheduled conference call, AMD management will outline the company’s current state of affairs and offer guidance regarding its future business prospects. The conference call also presents an opportunity for analysts to discuss the current results in an open forum. This event has had a history of causing significant volatility in AMD stock.

Swings post-earnings can be significant and cause angst for investors, especially when it comes to AMD stock it seems. Investors can better prepare for the possible reaction in price by examining past post-earnings reactions.

What to Expect When AMD Reports

Examining Advance Micro Devices’ track record of earnings can give insights into the AMD management’s ability to perform. Recent reported earnings have been disappointing. Over the last eight quarters, AMD missed earnings four times, matched earnings three times, and beat earnings estimates only once. (Source: “AMD Earnings,” Street Insider, last accessed July 19, 2016.)

According to Zachs Investment Research, based on eight analysts’ forecasts, the current consensus earnings-per-share (EPS) forecast is a loss of $0.11. Given management’s recent history of missing on the bottom line, I have little expectation that the company will beat consensus earnings estimates for Q2.

AMD stock has had a history of significant volatility post-earnings. The three boxes highlighted below illustrate the volatility AMD stock experiences post-earnings:

Advanced Micro Devices, Inc. NASDAQ INDX

Chart courtesy of

  1. October 15, 2015: AMD reported an earnings loss of $0.17, missing consensus estimates by $0.05. Post-earnings, AMD stock closed the day down 1.5%.
  2. January 19, 2016: AMD reported an EPS loss of $0.10, matching consensus estimates. Post-earnings, AMD stock gapped down and closed the day down 7.7%.
  3. April 21, 2016: AMD reported an earnings loss of $0.12 per share, beating consensus EPS estimates by $0.01. Post-earnings, AMD stock gapped up, closing up 52.3%.

The last three quarters were highlighted with one miss, one match, and one beat. The bright spot is that the trend over the last three quarters is improving. All three reactions were different. The largest percentage moves were seen on the days when the price gapped and that gap remained open. The market also rewards investors for positive news post-earnings.

Investors could consider options to help quantify the level of volatility in a stock like AMD post-earnings. For example, options pricing for the July 22, 2015 contract are implying a one-day move post-earnings of 20%. This translates into a reaction of up or down $1.10.

The price trend of AMD stock can be used to give some insight into the possible direction of the upcoming earnings reaction.

Advanced Micro Devices, Inc. NASDAQ

Chart courtesy of

Year-to-date, AMD stock has been trading with upside bias along a clearly defined uptrend with higher highs and higher lows.

The chart is littered with pennants. In this context, this pattern is a continuation pattern and reaffirms the current bullish trend on AMD stock.

Volume (highlighted in green in the chart above) also supports the bullish case and is a textbook example of expanding on breakouts. Volume increases as the trend makes new highs for the year and receded on pullbacks.

The price chart is without a doubt bullish and cast a bullish tone on a possible earnings reaction.

The Bottom Line on AMD Stock

Advanced Micro Devices has had a dismal record of beating on the bottom line. The only bright spot is that the trend over the last three quarters has improved. The chart is clearly bullish, so my bias is to the upside. I believe AMD stock will see a reaction of 20% based on options volatility. The post-earnings reaction will likely be to the upside, but because of the company’s history of lackluster results, I can’t say this with any true confidence.