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Why Advanced Micro Devices Continues to Power Higher While Intel Topples

InvestorPlace logo InvestorPlace 7/29/2020 Matt McCall and the InvestorPlace Research Staff
a close up of a sign: Advanced Micro Devices (AMD) logo on blue background with Ryzen and Radeon brands © Source: Joseph GTK / Shutterstock.com Advanced Micro Devices (AMD) logo on blue background with Ryzen and Radeon brands

It didn’t look like Advanced Micro Devices (NASDAQ:AMD) could have much more upside after such a powerful breakout last week. However, AMD stock proved its doubters wrong on July 28, ripping higher on better-than-expected earnings.

a close up of a sign: Advanced Micro Devices (AMD) logo on blue background with Ryzen and Radeon brands © Provided by InvestorPlace Advanced Micro Devices (AMD) logo on blue background with Ryzen and Radeon brands

The move catapults the stock to new all-time highs, as the chipmaker continues to steam forward. Alongside Nvidia (NASDAQ:NVDA), another name I love, the two companies continue to show that they can get it done with or without the novel coronavirus

Let’s dig deeper on this name. 

AMD Stock Rips on Earnings

Earnings of 18 cents per share topped estimates by a penny. Revenue of $1.93 billion grew 26% year-over-year and beat expectations by $70 million. For a company to grow sales 26% at a time like this is impressive. 

However, it was guidance that really motivated investors to bid shares higher by roughly 9% in after-hours trading. 

Management expected third-quarter revenue of $2.45 billion to $2.65 billion, well ahead of the consensus $2.3 billion estimate. For the full-year, management upped its revenue growth guidance from a range of 20% to 30%, to 32%. That’s about 700 basis points ahead of the consensus view calling for approximately 25% revenue growth in 2020. 

To some investors, a glance at the headline numbers may not resonate with the recent stock move. That is, rallying more than 25% in the past five trading sessions (including the post-earnings move).

However, I would argue that AMD delivered exactly what investors needed to see. That is, a strong quarter, expectations for a solid Q3 and a more robust full year in a time of major uncertainty. Combined with the news from Intel (NASDAQ:INTC) and investors see the runway in AMD. 

What Happened With Intel?

The news with Intel is as beneficial to AMD as its own earnings report. On July 23, the company reported a top- and bottom-line beat on its second-quarter results. However, in the three days since reporting, Intel shares are down 18%. 

A big part of that selloff is the delay in its 7nm chip. Management said it’s running about a year behind target now, which turns out to be a big win for AMD, which now has a larger market share to attack and less competition. 

Intel’s management said the launch could be delayed to late 2022 or even early 2023. So combine the current momentum in AMD’s business with a longer runway in this regard, and it’s obvious why investors are bullish.

Bottom Line With AMD

a close up of a map: Daily chart of AMD stock price. © Provided by InvestorPlace Daily chart of AMD stock price.

Click to Enlarge

Source: Chart courtesy of TradingView

Nvidia has momentum and the stock price has shown it. Now, AMD stock can join the club too. The two are doing well as gaming and demand from other industries continues to drive top- and bottom-line growth. 

Management told us AMD will have solid growth this year and consensus expectations for 2021 are strong too (21% revenue growth and 49% earnings growth). At a time like this, it’s hard to find companies that have sustainable growth. Those that do are worth a higher valuation than in the pre-coronavirus days, in my view. 

Many forget that AMD stock doubled from the Q4 lows to the Q1 high in February. After getting through the coronavirus selloff, shares continued to chop sideways. AMD shares spent four months consolidating but were unable to break out through resistance at $58 to $59. 

That changed earlier this month — ahead of the Intel news and earnings — as the breakout caught investors’ attention. That move got investors long and had them looking at potential upside extensions. Specifically, the post-earnings move has investors looking at the 161.8% extension at $73.19. 

If AMD clears this level and it holds as support, look to see if it can continue higher. A longer-term upside target may be the two-times range extension up at $81.79.

Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.  

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