The Bearish Case for Advanced Micro Devices

A breakdown could soon occur in the chart of Advanced Micro Devices (AMD) if the stock breaks a support level that has formed over the past eight months. Read more to learn how to profit from this trading opportunity.

A breakdown could occur in the chart of Advanced Micro Devices, Inc. (AMD) if the stock breaks the support level that has emerged over the past eight months.

AMD designs and produces microprocessors for the computer and consumer electronics industries. The majority of the firm's sales are in the computer market via CPUs and GPUs. AMD acquired graphics processor and chipset maker ATI in 2006 in an effort to improve its positioning in the PC food chain.

AMD is benefiting from sales of its Ryzen and EPYC server processors, due to the increasing proliferation of Artificial Intelligence (AI) and Machine Learning (ML) in cloud gaming. Its acquisition Xilinx is expected to boost its data center business. Management has also provided encouraging revenue guidance for this year.

The company had $2.3 billion in cash as of the end of the latest reported quarter. This compared to zero short-term debt. AMD also has a net profit margin of 25.5%. Earnings were up 62.5% and revenue rose 52.1% year over year in the most recent quarter.

The stock has elevated valuation metrics with a trailing P/E of 40.17 and a forward P/E of 43.48. The stock has shown mainly bearish momentum this year as seen in the chart below.

Take a look at the 1-year chart of AMD below with added notations:

  Chart of AMD provided by TradingView

AMD has formed a major level of support at the $74 (green) level over the past eight months. The stock looks like it may be making its way back down to that level again.

A trader could enter a short trade if the stock were to break below $74, with the expectations of a breakdown.

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AMD shares rose $1.18 (+1.50%) in premarket trading Tuesday. Year-to-date, AMD has declined -13.20%, versus a 10.50% rise in the benchmark S&P 500 index during the same period.

About the Author: Christian Tharp

I am an expert stock market coach having helped over 4000 beginner and advanced traders & investors from around the world take control of their financial futures. I also write stock market related articles for the Adam Mesh Trading Group and Yolo Publishing.


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