Can AMD Continue the Semiconductor Earnings Rally?

Western Digital Jumps 9% on Earnings Beat Amid Strong Cloud Demand

$Advanced Micro Devices(AMD)$’s earnings are on deck for October 29, 2024, and the semiconductor sector is buzzing with optimism. Companies like TSMC, Lam Research, and Western Digital have delivered strong results in recent weeks, largely driven by surging demand in artificial intelligence (AI) and cloud computing. Even $NVIDIA Corp(NVDA)$, the AI leader, hit a new all-time high this week, signalling market enthusiasm for tech stocks despite macroeconomic uncertainties. But with high expectations already priced into the sector, the big question remains: Can AMD keep the rally alive?

In this article, I’ll explore the outlook for AMD’s earnings, provide my target price forecast, and share two high-probability trade ideas to capitalize on the evolving market dynamics.

Semiconductor Sector Overview: AI and Cloud as Key Growth Drivers

The semiconductor industry is in the midst of a structural boom fuelled by AI, cloud adoption, and advanced manufacturing. Recent earnings reports show this trend accelerating:

Western Digital surged 9% on October 25, 2024, after posting better-than-expected results. The company attributed the earnings beat to strong demand from cloud providers, which are driving orders for NAND flash and hard disk drives.
TSMC and Lam Research also posted solid quarterly results, hinting at resilient chip demand despite geopolitical headwinds.
Nvidia broke new highs this week, fuelled by optimism about AI hardware demand.

The market narrative is clear: Investors are chasing companies that benefit from AI infrastructure and data centre expansion, expecting them to outperform in an environment of persistent technological disruption.

AMD Earnings: Key Metrics to Watch

To meet investor expectations and sustain its stock price above $156.23 as of October 25, 2024, AMD’s report needs to demonstrate growth in these key areas:

Data Center and AI Products: AMD’s EPYC and MI300 chips are pivotal in its competition with Nvidia in AI and cloud infrastructure markets. Strong results here could reaffirm AMD’s growing market share.
PC Market Stabilization: While the consumer segment has been under pressure, any signs of stabilization or recovery could provide upside.
Revenue and Margin Guidance: Investors will closely watch forward guidance for signs that AI momentum will continue into 2025.

Challenges: Despite the optimism, AMD’s stock already reflects high expectations, with recent gains mirroring broader market trends. A disappointment in earnings or AI growth projections could trigger profit-taking.

Target Price Forecast: If AMD delivers strong data centre and AI product sales, the stock could rise toward $160-$165. However, if the results fall short, I expect a pullback to $140-$145, offering a better entry point.

Trading Ideas

1. Bear Put Spread on AMD – Hedging Against a Potential Pullback

Rationale: Given that AMD is trading near $156, and the high expectations priced in, a slight miss in AI-related growth could lead to a selloff. A bear put spread allows us to profit from any downside while keeping the risk limited.

Strategy Details:

Buy 1 AMD $155 Put (Expiration: Nov 15, 2024)
Sell 1 AMD $145 Put (Expiration: Nov 15, 2024)
Max Profit: $10 less premium
Breakeven: $155 less premium

This trade benefits if AMD’s earnings disappoint and the stock pulls back to the $145 range, in line with a broader sector rotation.

2. Bull Call Spread on Nvidia – Riding the AI Momentum

Rationale: Nvidia’s new all-time high signals ongoing strength in AI demand. A bull call spread capitalizes on Nvidia’s upward trend without requiring a major rally.

Strategy Details:

Buy 1 Nvidia $140 Call (Expiration: Nov 15, 2024)
Sell 1 Nvidia $150 Call (Expiration: Nov 15, 2024)
Max Profit: $10 less premium
Breakeven: $140 plus premium

This trade aligns with Nvidia’s strength and positions for AI-driven upside, given the sector's favourable sentiment.

Conclusion: Will AMD Keep the Rally Going?

AMD’s earnings report on October 29, 2024 will be a critical moment for the stock and the broader semiconductor industry. While AI and cloud growth remain strong, expectations are high, and any disappointment could lead to a pullback.

My target price is $160-$165 on strong results, but a downside risk to $140-$145 exists if earnings or forward guidance underwhelm.

These trading strategies—a bear put spread on AMD and a bull call spread on Nvidia—offer ways to profit from both potential outcomes, ensuring limited risk exposure while capturing market momentum.

Please DYODD.

AMD Guidance Misses: Will it Hit $130 This Time?

AMD's Q3 revenue grew by 18% year-over-year to $6.82 billion, surpassing market expectations of $6.71 billion. Adjusted earnings per share came in at $0.92, in line with market expectations. However, the Q4 guidance fell short of expectations, dampening the enthusiasm surrounding AI chip demand. -------------------- What's your target price? Would you bottom AMD at $150 or lower prices? Will AMD drop to $130?

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