This article was written by Mathieu Stalder, a Financial Analyst at I Know First.

Summary

• Stock is in a decisive technical area, as the stock price approaches a resistance and a support zone
• Solid financial figures but fundamentals indicate a clear overvaluation as the price to book ratio of 15.83 is rather expensive, as the industry average is only 2.10.
• AMD has been added to NASDAQ-100 due to its high valuation
• Huge Potential in the Semiconductor Industry as HIS Markit forecasts that by 2025 , there will be around 75 billion installed Internet of Things (IoT)
• Current Bullish Long Term I Know First Algorithm Forecast

Technical Analysis

Overall seen AMD is one of the best performing stocks in the market as it outperforms 94% of the stocks in the Electronic Components and Accessories industry. This is mostly due to strong growth of the stock 4 month ago. The stock is currently trading in the middle of the 52 weeks range, whereas the S&P500 Index is on the lower end of its 52-week range, which shows that AMD is doing a bit better than the Index. By analyzing the chart of the AMD stock price, it clearly shows that there is a support zone around $16.50, which has not been broken since last June. When looking at the resistance, we can clearly object two resistances. One resistance goes from $20.30 to $20.62, which is formed by several trend lines. The second resistance is around $21.41, which is also a trend line.  According to the website chartmill , AMD has a bad technical rating. The stock price has been mostly consolidating lately, and the volatility has been reduced significantly. Although there is a good support line, there are also two resistance lines, which I do not expect to be broken soon. Once the resistance will be broken, it will be worth investing.

[Image Source: chartmill.com]

Fundamental Analysis

[Image Source: nasdaq.com]

AMD has a return on assets of 7.36%, which clearly beats the industry average of 1.61%. The return on equity is 28.44%, which is one of the best returns in the industry, outperforming the industry average of 11.84%.  Profit margin is solid 5.05%, also beating its competitors, which come to an average rating of 2.06%. On the other side AMD does not pay any dividend to its stockholders. The Price/Earning is 49.50, which means that the valuation of the company is way too high now. If you compare it to the industry average of 14.85 it is even more impressive. Also, the Forward Price/Earnings Ratio of 33.62 indicates a possible overvaluation of the company. Moreover, the price to book ratio of 15.83 is rather expensive, as the industry average is only 2.10. 98% of the companies listed are valued cheaper than AMD. In the chart above you can clearly observe that the revenue growth has not been very strong over the last few years and the earnings per share are quite disappointing as well. Although the financial figures of the company look quite promising with a very high profitability, the valuation of the company is way too high with a total market capitalization of almost $18 billion.

AMD enters the NASDAQ-100

[Image Source: cnbc.com]

On December 20 AMD announced  that its stocks have been added to the NASDAQ-100 Index, the largest non-financial stocks listed on the Nasdaq. That is huge step for a company like AMD and the Senior Vice President Ruth Cotter seems quite happy about it: “Joining the NASDAQ-100 Index further demonstrates the progress we’ve made in recent years to transform the company, execute our long-term strategy and deliver a robust product and technology roadmap.” The company has been added to the index before the market started on December 24. The company is now among the 100 most valuable US-companies excluding the financial industry.

What is ahead for the Semiconductor Industry?

[Image Source: forbes.com]

Smart cities and futuristic cars, this is how we want the future to look like. Chips are key to the transformation in such a future. HIS Markit forecasts that by 2025 , there will be around 75 billion installed Internet of Things (IoT), which is an incredible number, that shows the potential of the industry. Over years, the semiconductor industry has been trying to minimize the size of chips. According to Moore’s Law, the process of shrinking the size of a chip becomes more and more difficult. Therefore, companies focused more on improving design, equipment and materials or minimizing costs. This might change now with the Fourth Industrial Revolution. As chips must proceed big data, much more chips will be demanded, which will boost the industry. Therefore, I see many opportunities for AMD to grow in the future and if they can fulfill their potential, I am very confident that this stock will have a high return. The graph below also shows the Index of the entire Semiconductor Industry. Although the Index had a major setback recently, the trend is still positive and the Index has been growing constantly since 2010.

[Image Source: marketwatch.com]

Current Bullish Long Term I Know First Algorithm Forecast

In general, this have been a rough year for the semiconductors industry. The trade war between the US and China has been damaging, as many semiconductor companies make a vast majority of their sales in China.  I do not believe that the US and China will come to an agreement soon. Also, the lowering demand for smartphones and cars has been damaging many chip producers and will stay a big threat to AMD in the future . Although there is huge potential in semiconductors and chip manufacturing industry, I see positive outlook in a long perspective and AMD being part of this is bearish for the next few months. The valuation of AMD is way too high and implies a correction in the next few months. Nevertheless, I am convinced that these issues are just temporary, and that AMD stock will become an interesting stock to invest in a year. My conclusion is supported by the algorithmic forecast of I Know First for AMD:

Past I Know First Forecast Success with AMD

I Know First has been bullish on AMD shares in past forecasts. On August 5, 2018, I Know First algorithm issued a bullish 1 month forecast for AMD with a signal of 17.51 and a predictability of 0.53, the algorithm successfully forecasted the movement of the AMD share. After the forecast has been published, AMD shares have risen 51.76% within 1 month in line with the I Know First algorithm’s forecast. See chart below.

(Source: Finance Yahoo)

This bullish forecast for AMD was sent to I Know First subscribers on August 5, 2018.

To subscribe today click here.

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