Advanced Micro Devices Stock Up 35% in November – Time to Buy AMD Stock?
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The price of AMD stock is up 35% so far in November following news that the company won a contract from Meta – formerly known as Facebook (FB) – to provide high-end processors for its massive cloud computing operation.
“We are building significant momentum in the data center with our leadership product portfolio, including Meta’s adoption of AMD EPYC and the buildout of Frontier, the first U.S. exascale supercomputer which will be powered by EPYC and AMD Instinct processors”, stated AMD’s Chief Executive Lisa in regards to this development.
Shares of the chipmaker surged 10% on 8 November after the announcement was made and the news has propelled the price of AMD stock since then to its current level of $161.91 per share.
The company also announced this month that its 3rd generation AMD EPYC processors were selected by IBM Cloud to power its Bare Metal Servers.
Meanwhile, an industry publication that tracks the penetration of certain products in the supercomputing space indicated that AMD products currently power 73 supercomputers resulting in a 3x 12-month leap compared to the number showcased in 2020.
Overall, the market seems to have reacted positively to these developments as they emphasize the firm’s strong position in the highly competed semiconductors industry.
Now, what can be expected from AMD stock after this remarkable rally? In this article, I’ll be assessing the price action and fundamentals of this tech stock as we get closer to the end of 2021.
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AMD Stock – Technical Analysis
The technical setup seen in the AMD chart above indicates that the price has broken above a descending triangle pattern that emerged in the weeks that followed the release of the firm’s Q2 2021 earnings report.
This break occurred after the price found support at the upper bound of the consolidation rectangle shown in the chart as well and it signaled the start of the uptrend we have witnessed so far in November.
However, there are multiple reasons to adopt a cautious approach now that the trend has gone vertical as the price is heavily stretched from its moving averages while momentum indicators are already warning about an upcoming correction.
In this regard, the Relative Strength Index (RSI) is displaying a bearish divergence as the oscillator has made lower highs while the price kept climbing. Moreover, the MACD has just tagged the signal line and seems poised to cross below it. This move has been preceded by a steady decline in the stock’s positive histogram readings, which are currently standing near zero.
Additionally, AMD stock is currently trading 10.5% above its 20-day simple moving average, 30% above its 50-day SMA, and 66% above its 200-day SMA.
These technical readings indicate that bulls may have already exhausted all their ammo and the fact that the price is so overextended increases the downside risk dramatically. Therefore, the outlook for AMD stock at this point is bearish as the market has gotten ahead of itself and may have overpriced the impact of these latest positive developments.
AMD Stock – Fundamental Analysis
The bottom-line performance of AMD stock has leaped in a way that nobody could have expected in the past year and so far in 2021 as higher demand from multiple fronts alongside the ongoing chip shortage has propelled the company’s profitability.
In the past 12 months, AMD has produced GAAP earnings per share of $3.24 resulting in a 57% leap compared to the figure reported in 2020. Meanwhile, analysts are expecting to see the firm’s profitability jump by an average of 25% in the following two fiscal years.
At this time, the forward P/E ratio for the company is standing at 52x. This results in a price-to-earnings-to-growth (PEG) ratio of 2 based on the stock’s forecasted earnings growth and that indicates a certain degree of overvaluation.
It is unclear to what extent the current tailwind provided by the chip shortage is lifting the firm’s performance. In this regard, once this situation is over, AMD could see its top and bottom-line results suffer as a result of lower prices.
With this in mind, even though analysts are fairly optimistic about the future of AMD, there is a scenario in which the company may actually experience a setback in its profit-generation capacity.
Moreover, its currently stretched valuation along with the overheated technical readings mentioned above increase the odds of a sharp decline in the stock price shortly.
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