AMD Could Bottom Out in the Low 70s

Advanced Micro Devices Inc. (AMD) reports Q1 2022 results after Tuesday’s closing bell, with analysts forecasting a profit of $0.92 per-share on $5.58 billion in revenue. If met, earnings-per-share (EPS) will mark a 75% increase on profit compared to the same quarter last year. The stock rose more than 5% in February after beating Q4 2021 top and bottom line estimates but rolled over quickly and has lost more than 30% of its value in the last three months.

Bearish Sentiment Limits Upside

AMD’s innovative pipeline features the new Genoa server chip, which should compete forcefully with Dow component Intel Corp. (INTC) and Taiwan Semiconductor (TSM). However, PHLX Semiconductor Index has lost more than 26% this year, highlighting a painful deterioration in sentiment. Worse yet, chip stocks are showing no signs of bottoming out, with Intel nearing a breakdown and industry leader NVIDIA Corp (NVDA) trading at a 9-month low.

But not everyone is bearish on AMD’s outlook. Raymond James analyst Chris Caso upgraded the stock to ‘Strong Buy’ last week, insisted the company is well-positioned to thrive in a tough semi environment. As he notes “we have become more concerned about cycle risks given potential for slowing consumer demand and elevated inventory levels at customers, (but) we favor those semi companies with strong secular drivers, more muted cyclical exposure and attractive valuations, for which AMD appears well positioned.”

Wall Street and Technical Outlook

Wall Street consensus stands at an ‘Overweight’ rating based upon 20 ‘Buy’, 4 ‘Overweight’, 14 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $100 to a Street-high $185 while the stock is set to open Monday’s session nearly $15 below the low target. This dismal placement highlights the failure of analysts to properly evaluate the financial and psychological impact of rising inflation, war in Eastern Europe, and chronic supply chain disruptions.

Advanced Micro broke out above 20-year resistance at 48.50 at the start of 2020, entering a powerful uptrend that stair-stepped to an all-time high at 164.46 in November 2021. The stock has been cut in half since that time, giving up nearly two-thirds of the gains posted since the March 2020 low. It broke through support at 100 in April and is now targeting the May 2021 low in the low 70s.  An active monthly sell cycle should keep pressure on price in the second quarter, favoring downside into that support zone.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.