New Price Target for AMD After Nvidia China Sales Update

On Monday morning, it dawned on our top editor and I that we had not updated my views on Advanced Micro Devices  (AMD)  in almost two months, which is rather incredible. 

Why is that incredible? Simply because I think most readers and viewers know how much of a fan of CEO Lisa Su I am and the fact that I have been invested in AMD literally since the cows came home. (That's the term I use when it's been a while, and I am not about to research what month and year I actually opened my long position in AMD.)

Perhaps that's because the stock has largely gone sideways since (in a violent, volatile sort of way), blasting off and leaving an unfilled gap in its wake in early October. I do not intentionally avoid discussing stocks once I struggle in determining where the heck they are headed, but when I periodically assess my strengths and weaknesses (as all traders, investors and, really, humans in general need to do), I do have to wonder if something subconscious was going on there.

Anyway, without further ado, on Monday morning, news broke that Nvidia (NVDA)  plans to start shipping H200 chips to mainland China based customers by mid-February. As we all know, AMD is indeed a competitor with its own AI-capable chips designed specifically for Chinese markets. This is a positive catalyst for both stocks. AMD, by the way, remains the fifth heaviest allocation in the Sarge-folio.

Earnings

In early November, AMD went to the tape with the firm's fiscal third quarter numbers. For that period, AMD posted an adjusted EPS of $1.20 (GAAP EPS: $0.75) on revenue of $9.246 billion. Those top- and bottom-line numbers, adjusted or not, all beat Wall sSreet's expectations, while the total sales sported year-over-year growth of 36%.

The Client & Gaming sector, which is where the AI-capable chips are, generated revenue growth of 72.8%, producing operating income growth of 201%. For real. 

As far as guidance was concerned, AMD is projected revenue of roughly $9.6 billion for the current quarter. That would be good for year-over-year growth of 25%. We won't see those numbers until late January.

Notably, no revenue was projected to be driven by sales of AMD's Instinct MI308 chips to the Chinese marketplace. Do some of those sales now have to be priced in for Q1 or Q2? It's probably a safe bet that forward-looking sales will see a benefit from Chinese customers at least for the short-to-medium term until Chinese designers catch up.

The Chart​

Funny thing happened to AMD ​on the way out of a double-top pattern of bearish reversal that threatened to fill the still unfilled gap from early October. 

The stock found its footing earlier than one might have expected technically. AMD went on to develop a double-bottom pattern of bullish reversal with a $225 pivot. While that is the pivot for the pattern, the 50-day SMA is running just a few dollars above that line. This is where the pros will likely re-engage with the stock. For that reason, I see the 50-day SMA as the more important pivot of the two.

Relative strength has largely recovered and is closing in on a truly neutral reading after having been riding in between neutral and overtly weak for five to six weeks. The daily MACD is not yet bullish in posture, but all three components are now moving in the right direction. Once the histogram of the nine-day EMA moves above zero and the 12-day EMA moves above the 26-day EMA, we may just have a new ballgame here.

Target: $287 (down from $302)

Pivot: $230

Add: Down to October gap fill ($171)

Panic: Loss of 200-day SMA (currently $159)

At the time of publication, Guilfoyle was long AMD and NVDA equity.