AMD at a Crossroads: Purchase Now or Brace for Extra Losses? | Do not Ignore This Chart!

Superior Micro Units (AMD) barely topped Wall Avenue’s earnings and steerage expectations on Tuesday, however, as an alternative of rallying, its inventory tumbled 7%. AMD was at its 61.8% Fibonacci retracement stage, which, for a lot of merchants, can current a really perfect “purchase low” alternative or a “get-ready-to-exit” threshold for many who purchased the inventory close to the underside of the uptrend. 

AMD’s decline brings a number of inquiries to the fore: Is AMD a purchase or a promote? What technical or basic components may drive this choice? What are the important thing ranges to observe?

The Elementary Image

AMD’s EPS (61 cents) and income ($5.47 billion) barely edged above analyst consensus; they had been virtually in step with what Wall Avenue anticipated. The corporate’s present quarter estimates additionally matched analyst forecasts. It is nothing dangerous, however nothing nice, both.

The immense potential development driver, nevertheless, is AMD’s forecasted gross sales of AI chips—round $4 billion this 12 months. Nonetheless, the inventory got here tumbling down. So, if AMD’s plunge was the market’s approach of correcting an overvaluation, then is the corporate’s AI chip forecast already baked into the present worth stage?

Analyst worth targets are combined. However earlier than that, let’s take a look at the technical image.

AMD and the AI Revolution

Viewing AMD inventory on a weekly chart, you possibly can see it has been trending downward since hitting an all-time excessive of $227.30 in March.

CHART 1. CHART OF AMD STOCK. AMD’s relative efficiency towards NVIDIA, the chief in AI chips, begins sinking after November 2022. AMD can be trailing the semiconductor business. Chart supply: StockCharts.com. For academic functions.

Returning to the second week of November 2022 (see vertical blue line), you possibly can see AMD’s sluggish however regular climb relative to the bigger Tech sector (XLK). That line marks the onset of the present AI pattern, sparked by OpenAI’s public launch of ChatGPT. This budding AI “revolution” has thrust chipmakers like AMD into the limelight, positioning the business as a fertile floor for growth and a fiercely aggressive area for semiconductor corporations.

So, whereas AMD continues to be outperforming the overall Tech sector by 21%, it is trailing the bigger semiconductor business ($DJUSSC) by -25.85% and NVIDIA, the world’s main AI chipmaker, by a whopping 70%.

AMD missed the AI boat and fell drastically behind. Nonetheless, in accordance with its forecasts, AMD’s prospects of catching up are quickly enhancing. So, is that this what’s driving indecision on the present ranges?

In AMD’s every day chart (see under), the inventory is buying and selling on the 61.8% Fib retracement stage. It is a make-or-break stage for merchants: for these seeking to go lengthy, it represents a deep pullback (a break under this stage will increase the prospect’s bearishness). It additionally represents the bottom stage to exit a protracted commerce for many who acquired in towards the underside of the newest uptrend.

CHART 2. DAILY CHART OF AMD. The inventory is at a essential juncture, and its subsequent transfer can set off both a powerful purchase or promote sign, relying on the result and the underlying momentum.Chart supply: StockCharts.com. For academic functions.

The Cash Move Index (MFI) is trending upward, making a bullish divergence between worth and the shopping for stress it represents. The Chaikin Cash Move (CMF) signifies stronger promoting stress. If you happen to plan on going lengthy, you wish to see each indicators trending in the identical route.

3 Ranges to Watch

• The 61.8% Fib retracement line: A detailed under this stage would invalidate and presumably reverse the longer-term uptrend.
• The $133 worth vary: The low of 2024 and excessive of 2023 might function the following stage of assist.
• The $124 worth vary: A cluster of resistance and consolidation ranges in 2023, this vary might function an excellent decrease space of assist; nevertheless, a break under can sign additional draw back threat.

What Are Analysts’ Worth Targets?

Analyst worth targets for 2024 are pretty vast:

• The very best worth goal is between $265 and $270.
• The median worth goal sits between $185 and $190.
• The bottom worth targets vary between $120 and $140.

This means that the present worth is close to the underside of the goal vary and nicely under the typical to excessive consensus.

The Takeaway

With AMD’s earnings and steerage passable, its inventory sits at a essential juncture. Technically, AMD is at an optimum purchase stage, however momentum does not appear to favor the bulls. In the meantime, it is unsure whether or not AMD’s AI chip prospects are baked-in or underestimated. When you will not be capable of predict the result of AMD’s AI efficiency within the close to time period, you possibly can see the technicals ranges that may set off a bounce or a bust. Momentum and worth motion are essential, so watch them carefully within the subsequent few days.

Disclaimer: This weblog is for academic functions solely and shouldn’t be construed as monetary recommendation. The concepts and techniques ought to by no means be used with out first assessing your individual private and monetary scenario, or with out consulting a monetary skilled.