Two weeks after Advanced Micro Devices (NASDAQ: AMD) reported third-quarter earnings that did not match expectations for the near-term future, the stock rallied back into the $20 range. Will this bounce hold?
AMD is a typical short-long trade after earnings. The stock is down in the 40% range from the yearly high but the $20 price level represents an inflection point. On the client CPU side, Intel’s (NASDAQ: INTC) chip shortage creates an opportunity for AMD to gain some market share with Ryzen chips. Lower profit margin at the expense of market share gains is unlikely. As supply increases, input costs decrease. The snowball effect of higher volume sales is lower prices and steady profitability for AMD.
7nm Production
AMD’s supply deal with Taiwan Semiconductor (NYSE: TSM) is a positive move for both firms. The production is in development and should not face any delays. AMD continues to work with Globalfoundries in the interim because it is another important, strategic partner.
Takeaway
China and its trade war with the U.S. is not a headwind for AMD so investors need only forecast CPU and GPU sales in the quarters ahead. The GPU is still a negative drag on results, lagging in both technical development against Nvidia (NASDAQ: NVDA) and no longer benefiting from the cryptocurrency bubble earlier this year. Bulls and bears will fight to move the stock above and below the $19 - $20 line, respectively. Traders may take advantage of the price swings.
