Advanced Micro Devices (AMD) released earnings that disappointed less than two weeks ago. The third quarter had been rough on the entire semiconductor space. Expectations had already been ratcheted in.
Still, the firm, a long-time Sarge fave, failed even to meet that lowered bar. Revenue grew 29% year over year, which for most firms is pretty decent. For AMD, that was the slowest pace of sales growth, by a country mile, since the second quarter of 2020. Earnings contracted 8%. This from a firm that had posted several quarters of triple digit growth in recent years and had grown earnings 67% the quarter prior.
The firm had been forced to take a $160M charge for adjustments made to inventories and discounting across several business lines. Current quarter sales were guided toward growth of just 14%. The stock suffered. Wall Street had forgotten just who runs this shop. When I make my lists of favored CEOs, meaning that I would be willing to invest in a stock solely based on who the chief executive is, AMD's Lisa Su makes that cut (and it is an elite cut) every time.
Wall Street took note of new AMD products designed to maximize performance and take even more market-share from competitors. The recently announced launch of the firm's 4th generation EPYC processor known as Genoa has certainly gained industry notice. Wall Street is lining up to stand and salute.
Love Is in the Air
It started last week. Stifel Nicolaus five star rated (by TipRanks) analyst Ruben Roy reiterated his "buy" rating on AMD and his $91 target price. Roy wrote that he sees both the new Genoa and the Milan chips existing in different workloads and the firm's expanded portfolio driving increased market share. That same day, Toshiya Hari (also five stars at TipRanks) of Goldman Sachs, reiterated his "buy" rating and $74 target price (The stock was already there this morning) following the Genoa launch.
Hari wrote, "The event reinforced our view that the launch of Genoa will not only catalyze further near-term gains in both cloud and on-prem enterprise but also cement the company's status as a trusted and predictable partner of innovative compute solutions in the Data Center, likely positioning AMD for sustained momentum even beyond this new generation of processors."
Flash forward to this morning. Five star analyst Timothy Arcuri of UBS upgraded AMD to "buy" from "neutral", while increasing his target price from $75 to $95. Nearly simultaneously, fellow five star Tristan Gerra of Robert W. Baird upgraded AMD to a "buy" rating from "hold" and took his target price to $100 from $65.
Gerra wrote, "Supply chain checks highlight strong reception of Genoa at data center OEMs, which are shifting significant resources in support of AMD. Genoa's very significant performance step up should translate into an acceleration in market share gains for AMD in 2023, along with significantly higher pricing and a higher gross margin profile, reinforcing AMD's EPYC performance leadership for years to come."
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 increase it at that time. I did suggest 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 which in terms of segment performance for the third quarter, grew sales 45.2% and grew operating income 64%.
What that means is that AMD is not resting on its laurels and is protecting itself as well as building out the mote where it is strongest. Never underestimate Lisa Su. Never.
The Gaming and Client segments are going to take time to fully recover. Embedded is not really what the firm acquired with the Xilinx deal. Refusing to allow the firm's leadership in the data center was/is key at least until these other businesses get back up and contribute more energetically to the whole.
This stock continues to color within the lines, which I have pointed out to readers before. Since earnings, AMD has retaken both its 21 day EMA as well as its 50 day EMA. That pushes portfolio managers to increase long-side exposure.
By the time the stock price gets to the upper trendline of the regression model that line may be running with the stock's 200 day SMA, which could make for an epic showdown that could result in either stiff resistance or something along the lines of a "catapult" effect. Taking the 200 day line would force certain portfolio managers not exposed at all to open new longs.
Relative strength is moving the right way without yet looking technically overbought. The daily MACD is now in much better shape, with the 12 day EMA running above the 26 day EMA, as the nine day EMA histogram looks to be the most positive it has been since early August. Bringing that 26 day EMA into positive territory would be the "next" first step.
Advanced Micro Devices
- Target Price: $104
- Pivot: $90 (200 day SMA)
- Add: $67 (50 day SMA)
- Panic: $63 (break of 21 day EMA)