AMD Stock Forecast: What success looks like and why it’s unstoppable

 

 

This article was written by Isabelle Tao, a Financial Analyst at I Know First.

 

AMD Stock Forecast

“The key to making money in stocks is not to get scared out of them” – Peter Lynch

Highlights

  • Strong Radeon, Ryzen, EPYC, and Semi-custom Sales Contributed to a Strong AMD Q2 2018

  • Continue Holding to AMD Stocks

  • Technical Analysis Confirms AMD Stock Forecast Bullish Trends

  • I Know First’s Algorithm is Bullish for AMD in the Long Run

(Source: Wikimedia Commons)

AMD saw an impressive second quarter, with a revenue of $1.76 billion, a 53 percent rise year-over-year. It also reported its highest quarterly net income in seven years. Earnings per Share (EPS) increased by 700 percent from the previous-year quarter, and 50 percent from Q1 2018. EPS has surpassed analyst’s prediction in all 4 quarters and the company’s results are definitely improving at a solid pace.

Strong core product sales contributed to a strong Q2 2018

The Computing and Graphics segment showed 64% revenue growth due to strong Radeon and Ryzen product sales. Enterprise, Embedded, and Semi-custom revenues were up 37 percent year over year thanks to higher semi-custom and server revenue.

(Source: Pixabay)

Strengths

The company had an outstanding Q1 and Q2 in 2018.

In our July article about Q1, we cautioned against buying AMD stocks because a high percentage of its sales came from cryptocurrency miners GPUs. While there was a lot of hype surrounding bitcoin and crypto, the market seems to be shrinking with NVIDIA slowing down their manufacturing of crypto GPU. In Q2. sales from crypto-miners contributed to only 6 percent of AMD’s revenue, down from 10 percent in the first quarter. Yet the company managed to offset its blockchain market decline with growth in its core products. Hence, I believe AMD crypto-mining sales no longer pose the same risks as in Q1.

The Semiconductor industry seems to be performing better too as seen in SMH, the semiconductor ETF.

(Source: Yahoo Finance)

In the second quarter, AMD’s Computing and Graphics segment revenue increased 64 percent year-over-year. Since commercial notebooks and desktop makers Acer, Asus, Dell, HP, Huawei, Lenovo and Samsung all launched dozens of Ryzen processor-based notebooks, I expect Ryzen mobile sales to grow heading into the back-to-school season in September.

Weaknesses

Chinese chipmaker Hygon is now manufacturing Zen-based x86 CPUs using a licensing agreement it signed with AMD in 2016. While it’s good for Chinese citizens who are paying less, this agreement limits AMD direct sales in China. AMD also risks exposing its technology to Chinese companies.

Opportunities

In interviews with CEO Lisa Su, she emphasized the launch of the 7nm Vega GPUa for servers and workstations by the end of the year. This cutting-edge technology beats Intel which has consistently been delaying its 10nm processing technology until 2019. Reports after AMD’s Q2 earning call said that TSMC (Taiwan Semiconductor Manufacturing Company) was already ramping up 7nm chip manufacturing volume using AMD GPUs and 7nm AMD CPUs, providing AMD with a strong sales market.

Given Qualcomm’s exit form the GPU data center processor market, there are only two main players in that multi-billion dollar space: AMD and Nvidia (NVDA). A single AMD’s EPYC can deliver equal to or better performance than many dual processor servers used in datacenter rack. The EPYC is also more cost-friendly in both hardware operating costs. There has been strong customer adoption in the PC, gaming and data center markets. I believe this strong product will give it more market share in competition with Nvidia.

Threats

The US-China trade war continues to present risks to AMD. Given Hygon’s production of “Dhyana chips”, a similar product to AMD EPYC CPUs, we are unsure of how it will affect AMD in the long run. Competition from Nvidia and Intel continue to be high as both companies hold a larger market share than AMD.

Technical Analysis Confirms Bullish Trends

The 50 day short term and 200 day long term moving averages (MA) show bullish signs for AMD. With stock price over both moving averages and the 50 day MA over the 200 day MA, stock price is expected to rise. The 50 day MA is also higher than the 200 day MA, signalling a bullish trend.

The MACD indicator is also bullish. The MACD (purple line) is above the signal (yellow line) a signal line crossover. MACD is also positive, a zero crossover.

(Source: Yahoo Finance)

The on-balance volume demonstrates that so far, the trade volume moves in sync with the price. Trading volume is used to identify momentum in a stock and confirm a trend. If trading volume and price move in the same direction, there is momentum in the stock. Alternatively, if trading volume and price move in the opposite direction, it suggests the stock is losing momentum.

(Source: Yahoo Finance)

The ADX for UAL is at 14, which is below 25 and has no clear sign of a trend. Used together with RSI at 56, the momentum of the trend is inconclusive with these two indicators.

(Source: Yahoo Finance)

Analyst Recommendation

 

(Source: Yahoo Finance)

The current analyst consensus rating supposed at 2.6 on company shares (1.0 Strong Buy, 2.0 Buy, 3.0 Hold, 4.0 Sell, 5.0 Strong Sell).

Conclusion

AMD has solid products, a strong competitive advantage against Nvidia and Intel, and a clear roadmap for Q3 and Q4. These are fundamental strengths of the company achieved by a well-organized management. Though its P/E ratio is very high at 57.78, compared to the Electronics-Semiconductors industry P/E of 20.63, I believe in holding the stock for the rest of the year. It is worth paying close attention to the data processing space especially after Intel figures out its 10nm processing technology. That resonates with current bullish I Know First forecast.

Current I Know First Bullish Forecast

I Know First’s AMD forecast aligns with my bullish outlook for the company. On August 5th, 2018, I Know First issued a bullish forecast for AMD with the one month signal of 17.51 and predictability of 0.53. The long term signals is even stronger at 377.86 in the 1 year forecast.

How to read the I Know First Forecast and Heatmap

Past I Know First Success with AMD

On July 4, 2018, the I Know First self-learning algorithm showed a bullish outlook on AMD over a 1 month period with a signal of 19.29 and predictability of 0.49 as part of the dividends package. In accordance with this prediction, AMD increased by 23.27% over this time period, highlighting I Know First algorithm’s success with predicting AMD’s stock in the past.

In our previous premium articles on AMD from May, June, and July we issued these bullish forecasts for AMD:

Forecast date I Know First   Forecasts Indicators Results
May 16th 3-Month Forecast Signal of 23.71

Predictability of 0.73

51.56% increase in 3 months
June 10th 1-Month Forecast Signal of 267.72

Predictability of 0.57

5.21% increase in 1 month
July 5th 1-Month Forecast Signal of 15.41

Predictability of 0.49

13.02% increase in 1 month

How to read the I Know First Forecast and Heatmap

Current I Know First subscribers received this bullish AMD forecast on July 4th, 2018.

Please note-for trading decisions use the most recent forecast.

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