AMD Stock Could Be a Buy Ahead of Earnings

Advanced Micro Devices stock moved higher after the last two earnings reports

by Andrea Kramer

Published on Jul 24, 2018 at 12:55 PM

Semiconductor concern Advanced Micro Devices, Inc. (NASDAQ:AMD) is set to step up to the earnings plate after the close on Wednesday, July 25. The security is flashing a bullish signal ahead of the event, suggesting AMD stock could be on the verge of a breakout to the upside.

Advanced Micro Devices stock touched an 11-year high of $17.34 in mid-June. Since then -- and in the wake of a 60% rally in the past three months -- the equity has consolidated in the $16-$17 area. At last check, the shares are down 2.2% on the day, trading at $16.29.

However, AMD shares are now within one standard deviation of their 40-day moving average, after a lengthy stint above this trendline. There have been eight other signals of this kind, after which AMD went on to rally an average of 10.81% in the next month, per data from Schaeffer's Senior Quantitative Analyst Rocky White. From the security's current perch, a similar rally would put the stock around $18.05 -- in new-high territory and nearly double AMD's April low of $9.04.

amd stock chart july 24

Advanced Micro Devices stock moved higher after three of its last four earnings releases, including a one-day pop of 13.7% in April. On average, the security has moved 12.2% the day after earnings, regardless of direction, looking back eight quarters. This time around, the options market is pricing in a slightly bigger-than-usual move of 15.1% for AMD stock on Thursday.

Should the equity once again exceed expectations, a round of upbeat analyst attention could be in store. While Cowen today reiterated an "outperform" rating and $21 price target for AMD ahead of earnings, waxing optimistic on the company's competitive edge over Intel (INTC), not everyone has boarded the bullish bandwagon. In fact, 10 of 21 analysts maintain tepid "hold" recommendations. Plus, the average 12-month price target of $15.74 represents a discount to AMD's current perch, leaving the door open for price-target hikes to lure more buyers to the table.

A solid earnings showing could also spook lingering short sellers. While short interest declined by 4.5% in the most recent reporting period, nearly 20% of AMD's stock remains dedicated to short interest. A mass exodus of shorts could also help the shares break out of their recent range.

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