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By Dmitriy Gurkovsky, Chief Analyst at RoboMarkets
With almost finished cryptography, it's time to see what's happening with the graphics card manufacturers. When the demand increased, their earnings erupted, as did stock prices. Currently, however, demand is falling, and this is clearly visible in earnings reports. While earnings previously reached rather high numbers, they are now set to shrink. What is important here is whether the management of these companies used the large capital inflows to bring the performance of the companies to the next level.
Today we will take a closer look at Advanced Micro Devices, known as AMD. We could also consider Nvidia (NASDAQ: NVDA), but its stock is seven times more expensive than AMD, which means it is much less available to retail investors.
AMD's earnings had increased by 2,200% when the encryption boom was large, while Nvidia added 1,500% to its value. At the same time, when AMD's shares were at a minimum, they cost about $ 1.50, which was fine for retailers, while Nvidia's shares were 15 times higher.
Advanced Micro Devices (NASDAQ: AMD) is a major producer of GPUs and chipsets. The company has not had its own production facilities since 2009 and uses the structures of other companies. Among AMD's partners, one could mention Acer, Cisco, Dell, Ericsson, Fujitsu, HP, IBM, NEC, Nokia, Siemens and Sony.
The main competition of AMD is Nvidia. In 2010, AMD was better than Nvidia when its market share was 51%. In fact it was in 2010 when the first Bitcoin transaction was made. This was the starting point for the criptos and, finally, for the mining devices.
By 2018, the cryptic market capitalization reached a maximum of $ 840 billion, followed by the fall that has so far reached $ 119 billion. This caused a strong demand for used GPUs, while the demand for new devices decreased; this eventually led to the fall in AMD sales. Investors have booked their profits and even AMD shares have declined. Earnings will continue to fall and the company will have to distract investors from this.
The earnings forecast for the next quarter is also not positive, which means that the stock has not yet reached its minimum.
AMD: What happened recently
In October, the third quarter report arrived, with gains and ROI increasing year on year. Operating income rose to $ 150 million, while net income rose 70% to reach $ 102 billion. However, even with the gain on the rise (mainly due to CPU sales), the stock fell by 22% just because GPU sales were down. When this happened, Deutsche Bank, Mizuho and Morgan Stanley cut their forecasts on the price of AMD shares.
In November, AMD partnered with Amazon to provide Epic CPUs for Amazon data centers. This pushed the price of 9% in the short term. Another price spike occurred in December, when the 90-day "ceasefire" was reached in Sino-US trade wars; this was perceived as positive news for technology companies and, in particular, pushed the AMD price by 7.50% towards the top.
After that, the increase was over and the shares were falling for 20 days in a row. The last hope was the release of the Radeon IIV GPU, which was presented at CES on January 9, 2019. The stock began to recover, but then went down abruptly.
This whipsaw could continue for a long time. What you can do is pay attention to the forecasts for the next quarter and do technical analysis, also observing current and past events.
As such, some figures may show AMD's strengths.
Therefore, the equity ROI is equal to 28.44%, with a total sector number equal to 11.84%; the profit margin is 5.05% compared to 2.06%. On December 20, 2018, AMD was added to the NASDAQ 100. Every year, the amount of data to be processed is increasing, while reducing CPUs and GPUs becomes increasingly difficult. This is likely to increase demand and subsequently increase AMD earnings as well.
On the dark side, AMD is not currently paying any dividend, while the P / E is 49.50 against the industry average at 14.85, which means that the company is very expensive. Forecasts for next quarter earnings are negative, which could put AMD shares under pressure.
Therefore, AMD shares could be reduced in the short term, but in the long run, they seem rather attractive for investments. To understand where the price is going to "take off", one should use technological analysis.
In W1, the price is over 200 days SMA, which means that there is a growing trend. Fundamentally, however, the price may fall, perhaps finding its 200-day SMA support.
Secondary support levels are $ 10 and $ 15. $ 15, the closest, is very likely to be split, as it is far enough away from the SMA. If sellers become more active, the price may fall even further to reach and even burst $ 10. However, the odds are that the breakout will not last long, and a recovery will follow immediately. Therefore, $ 10 can be considered a good level to take long positions.
In D1, $ 22 is currently a strong level. In the event that it does not break early, it could then become a starting point for the starting price of $ 10.
disavowal
All the provisions contained in this document are based on the particular opinion of the authors. This analysis should not be treated as a trading advice. RoboMarkets can not be held responsible for the results of trading resulting from the negotiation recommendations and reviews contained in this document.
