Advanced Micro Devices Inc. (AMD) fell sharply earlier this month after issuing worse-than-expected second quarter guidance. While first quarter financial results were in-line with analyst expectations, the company’s second quarter guidance calling for 17% sequential revenue growth fell short. The market had been hoping that the company would reach an inflection point after the launch of Ryzen and a new data chip on the horizon.
The company’s Naples chip will compete with Intel Corp. (INTC) in the data center market, where the latter firm controls most the market. Capturing just a fraction of the data center market could generate hundreds of millions of dollars in revenue. The company expects to launch the new chip during the second quarter, but doesn’t anticipate meaningful revenue generation until the third or fourth quarter of the year.
From a technical standpoint, the stock could see a rebound from strong support at its 200-day moving average at $9.87 to its S2 resistance at $10.90 (+6.4%) or S1 resistance at $12.10 (+18.2%). The downside is likely limited to the trend line support at around $9.26 (-9.6%), particularly given that the relative strength index (RSI) appears oversold at 30.19. The moving average convergence-divergence (MACD) could also be starting to moderate.
These dynamics suggest that the stock could see a relief rally – or at least a period of consolidation – before a further drop below its key support levels. Traders may want to consider initiating a position just above the 200-day moving average that is acting as a support, since the sell-off from earlier this month may have created oversold conditions. The market could decide that the move was an overreaction and send shares modestly higher.
Charts courtesy of StockCharts.com. Author holds no positions in the stock(s) mentioned except for in passively-managed index funds.
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