Has AMD Stock Found Its Support Yet?
Earnings are not the easiest to trade. But if you bought Advanced Micro Devices, Inc. (NASDAQ:AMD) stock before it reported this time, you’re likely smiling now. On the day following its earnings release, AMD stock skyrocketed 52%, marking its biggest one-day rise in 35 years.
The story doesn’t end there. After such a giant surge, you’d expect some pullbacks. And that’s exactly what AMD stock is doing right now. Trading at $3.54 apiece, AMD shares have slipped more than 10% since the stock’s massive jump on April 22.
Whatever happened, happened. The question now is will AMD stock go down further?
Chart courtesy of www.stockcharts.com
To see where AMD stock is heading next, let’s take a look at one of the tools that often works wonders after a giant move—Fibonacci retracement levels.
Using the key Fibonacci ratios, the indicator can identify some of the key support and resistance levels after a move like AMD stock’s huge rise. Looking at the chart above, the predicted levels seem to be quite accurate this time.
The drop in AMD stock after the spike was promptly stopped at the 50% retracement level, corresponding to a price of $3.30. Then, it started climbing back up again. The bears have taken another shot at the stock, but AMD shares found another support—the 38.2% retracement level, or around $3.46. The stock touched that level a few times last week but never broke below it in any significant way.
Of course, these things only matter in the short term. For a longer time horizon, fundamentals are more likely to be running the show.
AMD’s business hasn’t been going that well. On the top line, AMD generated $832 million in the first quarter, reflecting a 19.2% decline year-over-year. Net loss also widened from $0.13 per share in the year-ago period to $0.14 per share. (Source: “AMD Reports 2016 First Quarter Results,” AMD, April 21, 2016.)
But there is one thing that AMD managed to do—beat Wall Street’s estimates. While both top- and bottom-line numbers showed year-over-year declines, they were better than analysts’ expectations of $819.1 million in revenue and $0.15 in net loss per share.
Moreover, the company has quite a few things that could cheer up investors about its future.
First up is guidance. In the second quarter, AMD projects a 15% sequential growth in its revenue, plus or minus three percent. So the guidance range is between $931.8 million and $981.8 million, much better than Wall Street’s expectation of $890.8 million.
Secondly, the company formed a joint venture to license its processor and system-on-a-chip (SOC) technology. Partnering with Chinese company Tianjin Haiguang Advanced Technology Investment Co, AMD hopes to expand its presence in China’s server-chip market.
The licensing deal would be great for AMD’s future revenue. The company is expected to receive $239 million in licensing fees and royalties from products sold by the joint venture.
In addition, AMD just secured new businesses for its semi-custom SOCs. In the earnings call, the company said that there are three “wins” for the new chips. Moreover, the new SOCs are expected to bring in $1.5 billion in revenue, and “that will come across over the next three years to four years.” (Source: “Advanced Micro Devices Lisa T. Su on Q1 2016 Results-Earnings Call Transcript,” Seeking Alpha, April 21, 2016.)
The Bottom Line on AMD Stock
There you have it. AMD stock could find its support in the short term, and has quite a few catalysts for the long term. After all this time of losing to Intel Corporation (NASDAQ:INTC) and NVIDIA Corporation (NASDAQ:NVDA), the company might be able to finally win back some market share.