Advanced Micro Devices, Inc $AMD(AMD)$ reports earning after market close on Tue May 3.
Let's see what we can expect...
Fundamentals
Semis stock such as AMD are expected to be negatively impacted by the four-prong headwinds. Frist is declining demand for graphics processing units (GPU) in crypto mining, being replaced by more efficient application-specific integrated circuits (ASICs). This coupled with weakening demand for PCs (expected to decline 5% in 2022) and continued supply-chain disruption due to COVID-19 and geopolitical crisis would affect revenue and growth of semis companies. Finally, inflation and recession if materialised would lead to reduced demand for chip. This seems déjà vu to 2018, where a glut of chips inventories caused massive stock price drop for semis companies.
The silver lining for semis companies this time around is cloud (including IoT smart devices, analytics), data centres (including those for visualisation and simulation of Metaverse) and EVs present massive chips demand and growth opportunities, and could more than offset any demand slowdown. If there is good revenue growth and positive forward guidance in those areas of AMD earnings call, the stock price might get a real boost.
President / CEO Dr. Lisa Su shared AMD’s focus on cloud services and datacentres that’s hyperscaled, for analytics, simulations, visualisations and intelligent systems. source: AMD
Technicals
Semis stocks prices have performed poorly since the start of 2022 after a stellar 2021, due to the headwinds mentioned in the Fundamentals above.
Leaders in the sector $AMD(AMD)$ and $NVIDIA Corp(NVDA)$ have dropped more than the $Philadelphia Semiconductor Index(SOX)$, representing 30 cap-weighted companies in the sector.
Further downgrades of AMD by analysts from Needham, Bank of America, and Barclays in late March caused another sharp drop, and YTD, AMD has declined –40.20%, the worst compared to NVDA (–35.15%), sector SOX (–24.95%) and tech heavy index $NASDAQ 100(NDX)$ (–20.76%). See Chart below.
AMD price % change the worst versus NDVA, sector SOX and index NDX
Earnings Plays: Advance, Motionless or Decline (AMD)?
From Daily chart, in terms of price action after earnings, AMD has been pretty consistent in beating earnings forecasts. Stock price would then advance massively, ranging from +13.8% to +34.67% that lasted five or more sessions, in the last three quarters (see green arrows)
Daily chart of AMD
In this Q1 2022 earnings, given that price has declined –40.20%, the odds favour a huge advance, could be up to the range of 10.78 to 23.13%. Of course if earnings and outlook are somehow poor, we can't rule out another big decline too, up to 13.15% (blue arrow).
One scenario that is of low probability is price not moving much or motionless, that would be very out of character for AMD around earnings.
I would look for a setup that allow me to go long AMD post earnings, but with tight stop to get out if I’m wrong.
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