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Shares of chipmaker Advanced Micro Devices, Inc. (NASDAQ: AMD ) are reversing lower on Monday, ending a month-long recovery from a test of its 200-day moving average after suffering a 30%-plus decline from its late-February high.
Excitement over the launch of the new Ryzen CPU architecture - allowing AMD stock to take the fight to Intel Corporation (NASDAQ: INTC ) for the first time in years - has given way to doubts about sales growth and guidance.
Click to Enlarge The rebound from recent lows accelerated last week on chatter arch rival Intel would license graphics chips from AMD for low-cost integrated solutions (for non-gaming PCs) to help compete against Nvidia Corporation (NASDAQ: NVDA ). Subsequent reports shot down that idea , and the bid quickly disappeared.
The company reported a 18.3% year-over-year revenue expansion for the first quarter on May 1 thanks to the Ryzen launch. But its profit-margin outlook disappointed.
Considering that AMD stock had gained 20% year-to-date (and nearly 400% since the beginning of 2016), this bit of bad news was enough to encourage aggressive profit-taking.
Following earnings, analysts at UBS noted margin guidance was lower than expected and thus maintained their "sell" rating on limited upside earnings potential in AMD stock to justify a high price-earnings multiple. The problem is the company will continue to invest heavily to compete with Intel (in CPUs) and Nvidia (in GPUs) going forward.
A break below the 200-day moving average - which also represents double-bottom support from January and May, would set up a fall back to pre-holiday levels near $7 for a drop of nearly 40% from here.
AMD stock will next report results on July 31. Analysts are looking for breakeven on $1.15 billion in revenue. Much depends on the success of the upcoming Vega GPU chipset. But with NVDA flooding the market over the past year with GTX1000 graphics cards, one wonders if near-term demand from PC gamers has already been satiated.
Anthony Mirhaydari is founder of theEdge(ETFs) andEdge Pro(Options) investment advisory newsletters. A two-week and four-week free trial offer has been extended to Investorplace readers. Redeem by clicking the links above.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
