A Better Way to Play AMD Stock

It’s been a great year for Advanced Micro Devices (NASDAQ:AMD). And entering 2021 a handful of analyst calls, expect more good tidings to come. Let’s dive into what Wall Street is excited over, the AMD stock chart and then offer a risk-adjusted strategy aligned with those findings.

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With the clock ticking for 2020, it’s been what many investors just several months ago would have called a miracle of sorts for Wall Street. From the depths of March’s record-breaking bear market plunge, the S&P 500 has motored to all-time highs and gains of more than 15%. That trumps the average annualized return of 9.8% over the past 90 years by more than 50%. For many investors, including AMD shareholders, the story gets even better.

On the back of the Covid-19 pandemic the tech-heavy Nasdaq Composite is up a stunning 47%. The Nasdaq’s leadership has been backed by stocks whose products and services have become critical or seemingly indispensable during this period defined by socially-distanced measures of all kinds.

From Amazon (NASDAQ:AMZN) to Zoom Video (NASDAQ:ZM) and other very public faces of Covid-19 such as Moderna (NASDAQ:MRNA), Peloton (NASDAQ:PTON) and Netflix (NASDAQ:NFLX), we’re fortunate it’s 2020 and not 1918 in more than one way. And those stocks have shined with minimum market-beating returns of 65% to nearly 500%. They’re not the only beneficiaries, though. There’s also life beyond the coronavirus to consider.

What makes many of today’s technologies possible is AMD’s semiconductor chips. That’s not exactly a secret. And the company’s embedded brand of essential goods for all of today’s electronics and cloud-based needs hasn’t gone unnoticed. Shares are up 99% and more than double the Nasdaq’s own boisterous gains. But if investors feel they’re late to the party, analysts are saying otherwise.

New Price Targets

On Monday, brokerage house Mizuho hiked its price target on AMD by roughly 10% to an above-the-market target of $102. The move was part of a larger bullish refresh for the semiconductor sector which included Micron (NASDAQ:MU), Qualcomm (NASDAQ:QCOM) and Broadcom (NASDAQ:AVGO) among others.

The AMD price lift is approximately 4% above the stock’s recent all-time high of $97.92. Analyst Vijay Rakesh cited “strong year-over-year momentum and tailwinds from a supportive fundamental and macroeconomic backdrop.”

Wells Fargo was also out recently with positive comments for a couple semiconductors including Advanced Micro Devices. In covering AMD, analyst Aaron Rakers remains positive on the outfit’s continued competitive positioning in PCs, its deepening data center GPU strategy and new Instinct MI100 chip for the scientific research market. The banker maintains a buy rating and 12-month price target of $120.

This past week on CNBC’s “Trading Nation” segment two analysts were asked to find top performers that can continue their hot streak based on attractive valuation, high potential earnings growth and quarterly outperformance. Piper Sandler analyst Craig Johnson came prepared with a trio of picks including AMD stock.

For the chipmaker, Piper sees good top and bottom-line growth potential and improving margins as evidence AMD stock has more room to run. And in a steal-the-mic moment, Simpler Trading’s market analyst, who already discussed Walmart (NYSE:WMT) as meeting the search criteria, then doubled down on Piper’s call, stressing tons of growth potential for AMD and a personal favorite pick in the semiconductor group.

AMD Stock Weekly Price Chart

Source: Charts by TradingView

Just over four weeks ago shares of AMD broke out of ‘W’ corrective pattern to new all-time highs. Since then the stock has consolidated in a tight flat base or ‘high handle’ formed around its former high.

To be certain, the preference from those long AMD would have been for sustainable and measurable gains out of the base. As far as constructive price action goes, today’s handle built on top of the larger bullish base has a lot working in its favor.

One item of concern right now is AMD’s weekly stochastics. Over the course of building the handle, shares have put together a bearish stochastics crossover just underneath overbought territory. The good news is, an oversold condition on the daily chart and monthly stochastics firmly entrenched in neutral territory are well-positioned to help support a possible and nearby upside reaction in shares.

Today the advice is to monitor shares for a weekly candlestick pattern low to develop. If shares cooperate, a subsequent third ‘W’ breakout above $94.28 and backed by stochastics firming up across all three timeframes, would have the makings of a solid-looking buy decision.

Should that day arrive in the near future, initiating a long February $100/$110 bull call spread position looks like a well-placed, risk-adjusted strategy to gain exposure to shares and profit from new highs.

Investment accounts under Christopher Tyler’s currently hold positions in Advanced Micro Devices (AMD), Micron (MU) and their derivatives but no other securities mentioned in this article.

The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.