BY MARK SEBASTIAN
February 2, 2024
Each week, my team will give an overview of a stock. I’ll discuss fundamentals, Licia will analyze the charts, and AG will break down the volatility.
Have a stock YOU want us to review? Email my team here. – Mark
Hey Trader,
With AI the craze and this being the biggest week of earnings, we thought we would look at one of the mega caps that is not worth over a trillion dollars…but does portend to what could happen to one of them. We are breaking down AMD which reported earnings on Tuesday January 30th.
Advanced Micro Devices (Ticker: AMD)
I wish I had taken a picture of this…but prior to AMD’s earnings on Tuesday the stock had a PE of over 1200….1200!
Tuesday’s earnings were good, the stock still dropped because…great earnings were already priced in.
With the small pull back and the strong earnings AMD now has a respectable Price Earnings Ratio of 328.63 on a trailing twelve month basis…not 1240…but still ludicrously high.
Even so there are things to like: They have overtaken Intel in a lot of ways in the personal computing and business computing area. They make good chips.
They are joining the AI craze and should have a competitor for NVDA in the next 12-24 months…That will be big. It will reduce NVDA margins likely, but potentially increase AMD’s margins … .but that is a ways off.
The big question is…is the future worth the current price…
Well, take a look at NVDA, it is worth a trillion … .I am not saying AMD is going there…but given the resources…I could see the two over time meeting in the middle.
Competition is going to be VERY bad for NVDA and a huge win for AMD and INTC.
AMD is sitting on a reasonable level of debt given the firm valuation:
Yes it is up a touch in the last 12 months…but even that pop is declining.
While I think near term, the movement in the stock is up in the air…over the course of 1-2 years…this stock is going to be worth 500 billion.
Advanced Micro Device (Ticker: AMD) blew through its previous all time high, reached back in late November of 2021, at $164.50.
It sailed right through that resistance to trade almost $185 last week.
The stock has now come down and is testing that old resistance which is now new support.
If AMD holds this support the next resistance will be that high at $185 and from there I am seeing $212.
If it cannot hold here, the next support level comes in at $150 and below there $140.
The daily chart is looking bullish here but the weekly chart does have a doji at the top of this uptrend.
Also, MACD is just beginning to turn bearish.
A lot of mixed signals here.
Implied Volatility is in no man’s land for AMD, but that is not bad
While AMD should be the stock of the future or at least one of them, right now implied volatility is dead in the middle of the range. Earnings came out and after the huge rally in January they were not enough to propel AMD above $180.
Dead in the middle of the range is an Iron Condor (IC) style trade. Now that Big Tech is out and for the most part holding up at higher levels the IC setup should be flat to short delta. That is I don’t really want a long exposure right away with the stock up here and not really rallying anymore.
Note below the 90 day realized volatility is around 44% Both 30 day and 60 day IVs around the same level but far above 6 month lows.
6 month AMD Chart with 90 day realized vol and 30 and 60 day implied volatility
Generally there is a long slow decline in IV post-earnings. I should be able to set something up on Monday to ride it.
AMD is forecasting 1Q sales of 8-10% below the street’s estimates. It did forecast a rise is AI chips, which it is trying to make more headway into, but not at a high level.
The White House’s announcement mandating “protections” for AI will not be viewed positively by the market, as it imposes new compliance and reporting requirements on AI companies.
Everyone is getting involved, with nine different Departments, including Defense, Transportation, and Treasury submitting risk assessments to the Department of Homeland Security.
Those assessments will form the basis for upcoming regulatory action.
And the hostile grilling of tech executives on the Hill regarding harm to children and the proliferation of “false” information will reverberate into the world of AI, which can only exacerbate such problems.
The Option Pit Team…
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Questions about anything? Leave a comment below!
Mark Sebastian
Founder & CEO, Option Pit
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