Is it time to buy advanced microdevices?

Advanced Micro Devices Inc. (AMD) in July beat top and bottom-line estimates for the second quarter of 2021, posting earnings of $0.63 per share on a historic 99.3% year-over-year revenue increase to $3.85 billion. The company also raised guidance for the third quarter and fiscal year, triggering a powerful breakout above the 7-month resistance seen in the 1990s. The rebound continued into August, setting an all-time high of 122.49, before profit taking lost more than 20 points from last week’s low of 101.98.

Analyst sets price target of $135

The stock moved higher this week, leaving investors wondering if now is the right time to buy AMD, especially with Dow component Intel Corp. (INTC) throw in the towel and shift the focus to foundry construction. There is no easy answer, given the 37% advance on July 27e low, leading to short-term overbought technicals. However, there is also no guarantee that the pullback will cut through the recent low and test breakout support.

BofA Securities analyst Vivek Arya took the bull case as the stock hit 106, expecting 25% additional upside potential. As he notes, “We reiterate our Buy on AMD with a price target of $135, or 25% uptrend from current levels. We see strong catching up potential, despite the strongest upward WPA revisions in the semifinals and with a clear path to doubling EPS to $5/share with consistent execution of the roadmap/equity gain versus INTC, which is diverted by expanding into a non-core foundry market”.

Wall Street and Technical Outlook

On the other hand, the consensus on Wall Street has deteriorated, with an ‘Overweight’ rating based on 16 ‘Buy’, 5 ‘Overweight’, 16 ‘Hold’ and 1 ‘Sell’ recommendation. Price targets now range from a low of $60 to a street high of $170, while the stock will open Wednesday’s session just $3 below the average target of $110. This placement suggests that analysts are fully focused on chip shortages, rather than AMD’s quarterly performance.

AMD completed a breakout above the 2000 high at 48.50 in July 2020, entering a historic advance that peaked in the 1990s in September. Breakthrough attempts in December and January failed, resulting in a steady decline, followed by a increase in the second quarter and a breakout in July, supported by high volume. The stock posted impressive gains before reversing into a correction that failed to reach the breakout level. Weekly Stochastics has now rolled into a sell cycle that could easily generate a final leg to double digits and a lower risk buying opportunity.

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

This article was originally posted on FX Empire

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