Trade AMD and Don’t Underestimate Lisa Su

Advanced Micro Devices (AMD) released disappointing earnings less than two weeks ago. The entire semiconductor space had a rough third quarter. The expectations had already been introduced.

However, the firm, a long-time darling of Sarge, failed to meet even that lowered bar. Revenue was up 29% year on year, which is pretty good for most businesses. For AMD, that was the slowest pace of sales growth, by country thousand, since the second quarter of 2020. Earnings fell 8%. This from a firm that has posted several quarters of triple-digit growth in recent years and grew earnings by 67% in the previous quarter.

The firm was forced to take a $160M charge for inventory adjustments and discounting across various business lines. Current quarter sales were guided towards growth of just 14%. The stock suffered. Wall Street had forgotten who runs this store. When I make my lists of my favorite CEOs, meaning I’d be willing to invest in a stock based solely on who the CEO is, AMD’s Lisa Su makes that cut (and it’s an elite cut) every time .

Wall Street has taken notice of AMD’s new products designed to maximize performance and take even more market share from competitors. The recent launch of the firm’s 4th generation EPYC processor called Genoa has certainly gotten industry notice. Wall Street is lining up to stand and salute.

Love is in the air

It started last week. Five-star Stifel Nicolaus analyst Ruben Roy (at TipRanks) reiterated his “buy” rating on AMD and his $91 price target. Roy wrote that he sees the new Genova and existing Milano chips in various workloads and the firm’s expanded portfolio driving increased market share. The same day, Toshiya Hari (also five stars at TipRanks) from Goldman Sachs, reiterated his “buy” rating and the target price of $74 (The stock was already there this morning) after the launch of Genova.

Hari wrote, “The event reinforced our view that the launch of Genova will not only drive further near-term gains in cloud and on-prem enterprise but also cement the company’s status as a reliable and predictable partner of innovative computing solutions in Data. Center, AMD is likely to stand for sustained momentum even beyond this new generation of processors.”

Flash forward to morning. Five-star analyst Timothy Arcuri of UBS upgraded AMD to “buy” from “neutral”, increasing his target price from $75 to $95. At almost the same time, five-star colleague Tristan Gerra at Robert W. Baird upgraded AMD to a “buy” rating from “hold” and lifted his target price to $100 from $65.

Gerra wrote, “Supply chain checks show Genoa’s strong reception by data center OEMs, who are shifting significant resources to support AMD. Market share gains for AMD should accelerate in 2023 with a very significant performance step-up Genoa. higher pricing and a higher gross margin profile, reinforcing AMD’s EPYC performance leadership for years to come.”

My Thoughts

I wrote to you after earnings less than two weeks ago, and told you that I was in no rush to reduce my long position, nor to increase it at that time. I suggested writing December 16th $50 puts for $1.00. Those puts are trading at $0.24 this morning. The new processor should strengthen the data center that grew sales 45.2% in the third quarter in terms of segment performance and operating income grew 64%.

What that means is that AMD is not resting on its laurels and is defending itself as well as taking out the moat where it is strongest. Don’t ignore Lisa Su. Ever.

The Gaming and Client parts will take time to fully recover. Embedded is not really what the firm got with the Xilinx deal. It was/is critical to refuse to allow the leadership of the data center firm at least until these other firms come back and add more energy to the whole.

This stock continues to color within the lines, which I mentioned to readers before. Since its earnings, AMD has recaptured its 21-day EMA as well as its 50-day EMA. That puts pressure on portfolio managers to increase long-side exposure.

By the time the stock price reaches the upper trendline of the retracement pattern that line may be running with the stock’s 200-day SMA, which may cause an epic show that may have stiff resistance or something similar to lead to a “catapult”. ” effect. If the 200-day line were accepted, certain portfolio managers who would not be exposed at all would be forced to open new longs.

Relative strength is moving in the right direction without looking technically overbought yet. The daily MACD is in much better shape now, with the 12-day EMA running above the 26-day EMA, as the nine-day EMA histogram appears to be the most positive since early August. The next “next” step was to bring that 26 day EMA into positive territory.

Advanced Micro Devices

– Target price: $104

– Pivot: $90 (200 day SMA)

– Add: $67 (50 day SMA)

– Panic: $63 (break on 21 day EMA)

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