38680628 - red bearish key on keyboard
Yesterday, after Nvidia lowered its guidance for its more recent quarter, semiconductor stocks across the board plunged. Rival Advanced Micro Devices (AMD) was caught in the crossfire, as it saw its stock drop 7% before opening Monday, and is down another 4% today (as of noon Tuesday).
This isn’t necessarily news for investors who have closely followed the components market over the past six months. High supply and lower demand has pushed down average selling prices, while the ongoing US-China trade war is contributing to fear in the market. While individual companies may not be able to be blamed, the likes of AMD, Nvidia and Intel are also seeing the effects of negative macroeconomic events.
As AMD is expected to announce earnings at the close of market, blogger Damon Verial of Seeking Alpha advises investors to sell the stock before the release.
Verial says that analysts tend to overemphasize market factors, including average selling prices, revenue estimates, and market share changes. He concedes that, “these metrics seem to be logically connected to a company’s earnings,”but does not see “evidence to support a statistical relationship between stock price and these company-specific statements.” Instead, the blogger says investors should look to more traditional technical analysis, including P/E and EBITDA/EV ratios, and points to a correlation between AMD’s stock price and EPS over the past decade.
But even though there is a correlation between EPS and AMD’s stock price, the blogger notes that there is no relationship between EPS and post-earnings movement on the stock. Guidance, he says, “does act as a predictor for post-earnings moves,” but since “sentiment is difficult to predict,” he is not recommending AMD as a trade post-earnings. While he usually would trust EPS, EBITDA and P/E metrics, these, for AMD, would mislead.
The blogger has a price target of $25 for AMD, but cautions that the stock is more likely than not to fall on the earnings release. He says, “my brief analysis of AMD’s earnings tradability shows that following sentiment and historical patterns beat predicting via EPS,” even though he says sentiment is difficult to predict. He says his models show “AMD more likely to fall than rise on earnings this quarter; therefore, I am bearish on AMD in the short term but bullish in the long term.”
Overall, Wall Street is bullish on AMD, even amid a slumping market. TipRanks analysis of 20 analyst ratings on the stock shows a consensus Moderate Buy rating, with 12 analysts recommending Buy and 8 recommending Hold. The average price target is $26.17, representing a 35% upside. (See AMD’s price targets and analyst ratings on TipRanks)