Advertisement
U.S. markets close in 5 hours 7 minutes
  • S&P 500

    5,252.71
    +4.22 (+0.08%)
     
  • Dow 30

    39,760.00
    -0.08 (-0.00%)
     
  • Nasdaq

    16,400.86
    +1.34 (+0.01%)
     
  • Russell 2000

    2,125.62
    +11.27 (+0.53%)
     
  • Crude Oil

    82.40
    +1.05 (+1.29%)
     
  • Gold

    2,232.70
    +20.00 (+0.90%)
     
  • Silver

    24.83
    +0.07 (+0.29%)
     
  • EUR/USD

    1.0803
    -0.0027 (-0.25%)
     
  • 10-Yr Bond

    4.2040
    +0.0080 (+0.19%)
     
  • GBP/USD

    1.2634
    -0.0004 (-0.03%)
     
  • USD/JPY

    151.2120
    -0.0340 (-0.02%)
     
  • Bitcoin USD

    71,481.30
    +1,794.54 (+2.58%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,966.53
    +34.55 (+0.44%)
     
  • Nikkei 225

    40,168.07
    -594.66 (-1.46%)
     

AMD Stock Is a Good Fit if You Can Handle the Heat

I’m not going to sit here and pretend that Advanced Micro Devices, Inc. (NASDAQ:AMD) isn’t one of the hardest stocks to call. After a blistering, record-breaking run in 2016, it was natural to view AMD stock as a correction candidate. For one thing, Advanced Micro is levered towards the ever-cyclical semiconductor industry. Another aspect is that AMD hardly has what you call inspiring fundamentals.

AMD
AMD

Source: Shutterstock

Despite robust and believable improvements among sector names like Nvidia Corporation (NASDAQ:NVDA) and Micron Technology, Inc. (NASDAQ:MU), AMD is different. The perennial number two to Intel Corporation (NASDAQ:INTC) shocked Wall Street with its 309% haul last year. But the rally felt more like a technical overreaction to broader sector bullishness. Case in point, AMD stock is up a little over 10% year-to-date.

I see two main ways people perceive this dynamic. On one hand, Advanced Micro is doing significantly better than its rival Intel, which gained only 2% YTD. On the other, AMD stock conspicuously lags the broader equities benchmark SPDR S&P 500 ETF Trust (NYSEARCA:SPY).

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

Although semiconductors —and especially graphics-card manufacturers—are the “it” sector, I’ve largely been skeptical of Advanced Micro. For some reason, several analysts don’t seem to care so much about the firm’s financial situation. Since I’m a technical guy, I don’t necessarily see that as a problem. But what sticks out to me is that AMD badly underperforms in key metrics, particularly against its prime competitors.

That dark cloud isn’t going to go away anytime soon. And I’m still not entirely convinced on AMD stock, if only for the reason that its rivals deliver comparative stability. However, if I were to buy into the company, this is what I would pay attention to.

Bitcoin Is Massive for AMD

It’s no secret that Advanced Micro’s graphics processing units, or GPUs, are among the world’s best. In some cases, it beats out fierce rival Nvidia. This advantage is all the more critical in that little-known sector called the blockchain and the cryptocurrency markets.

Of course, I jest. Cryptocurrencies such as Bitcoin are all the rage. Even with the price dropping down to around $3,500 after briefly hitting $5,000, Bitcoin maintains a market capitalization worth almost $60 billion. Ethereum, the number-two ranked cryptocurrency, isn’t that far behind with a market cap of $23 billion. Inside of a decade, the crypto concept launched from absolute obscurity to potentially disrupting global finance.

For its part in the blockchain revolution, AMD produces “Bitcoin-friendly GPUs.” These graphics cards are specially engineered to run the complex algorithms that are responsible for the blockchain’s  data verification process. Called “mining,” the process can be exceptionally lucrative as the first computer to verify a set of transactional data receives a cryptocurrency unit as a reward.

In prior years, AMD stock ebbed-and-flowed depending on GPU demand from its blockchain users. Today, circumstances have dramatically changed, and I would argue, all for the better for Advanced Micro. No longer are cryptocurrency markets simply limited to Bitcoin; now, interested parties have a vast array of options that simply didn’t exist before.

Some folks, like InvestorPlace feature writer James Brumley, sees the mass proliferation of cryptos as a major supply-demand problem. However, I look at it as the mass acceptance of a burgeoning technology. I will further counter by saying it doesn’t matter whether you think Bitcoin goes to $10,000 or to zero: the innovation that made Bitcoin possible isn’t ever going away.

Like it or not, that’s a perpetual tailwind for AMD stock.

Intriguing Technical Setup for AMD Stock

The other bullish factor I’m considering for AMD is its technical setup.

AMD stock, technical chart
AMD stock, technical chart

Specifically, over the long-term picture, shares appear to be consolidating ahead of a major move. In technical-analysis language, we would call this pattern a bullish flag. Essentially, both bulls and bears are taking a breather before deciding the trajectory of its next move.

Because so much trading pressure is built up in this flag formation, the following move usually is substantial. For me personally, it’s a big risk given the company’s financial situation. Also, I’m human just like anybody else. I don’t like to invest in tech firms that have gone up 570% in two-years time. The only exception is if a compelling story backs the speculation.

Does a strong argument support AMD stock at this level? Yes, it does, but strong negatives also weigh down the company. I see Advanced Micro going either way, but I’ll give a slight advantage to the bulls.

Josh Enomoto is long Bitcoin and Ethereum. 

More from InvestorPlace

The post AMD Stock Is a Good Fit if You Can Handle the Heat appeared first on InvestorPlace.

Advertisement