Advanced Micro Devices: What Is Priced In? (NASDAQ:AMD)

By Levi at StockWaves; produced with Avi Gilburt

“We observe repeating and predictable price patterns based on investor sentiment” – Zac Mannes – lead analyst, StockWaves. What does this mean and how can it help you in your trading and investing? At StockWaves we use a methodology that consistently produces high-probability setups. Let’s discuss what we currently see in Advanced Micro Devices (NASDAQ:AMD) from both the fundamental and the technical viewpoints.

Lyn Alden Provides Fundamental Analysis And Commentary

“AMD is beginning to get interesting at these levels from a fundamental point of view. However, I’m not fully convinced that the lows are in, and so I would emphasize looking at the technicals for a bottoming formation and risk management.

The company is enjoying better levels of growth and profitability than it has in the past. They are emphasizing data centers more for their product mix, which is better for margins. The stock is trading at a reasonable earnings multiple at this time.”

“However, the stock is still trading at a historically elevated sales multiple even after the pullback, in large part due to this greater level of profitability. This contributes to valuation risk because these price levels are reliant upon continued profitability.”

“The company has been very cyclical in the past rather than enjoying structural growth. Overall, I think the company is headed in the right direction, but the full year 2023 presents challenges as the US economy potentially enters recession. I’m personally looking out through 2024 before I’d consider entering the stock on a risk/reward basis. In the meantime, it does seem very interesting for trading opportunities.”

The Technical Setup

It was back in early November 2021 that our lead analysts began to sound specific warnings regarding AMD along with many similar names. It’s important to note this history as it provides us with further context as to the current opportunity now at hand.

Note charts and commentary from both Garrett Patten and Zac Mannes that clearly show how AMD was coming into a significant swing high in price.

We’ll cut Zac some slack on the typographical error in “manor” vs. “manner” because no meaning was lost. Both he and Garrett were spot-on in their read of the structure of the stock price. Members were duly warned that they should become protective of any positions in this and many other tech names.

What’s more is the context of the moment painted a more protracted pullback going forward since this was a larger degree third wave top being struck.

Now we zoom ahead a year plus to today. We find it likely that the low struck in October of this year at $54.57 was the initial low in a larger corrective pattern. What’s to follow should be a 3-wave bounce that unfolds as an ABC with a smaller ABC inside of each of those waves. Where do we find ourselves at the moment?

The ‘c’ wave of the B of a larger [A] wave may be finding its low this week. That means that we are on the lookout for a five wave advance in wave ‘i’ of C of [A].

What Is Priced In For AMD?

The answer to that question is highly dependent on what you understand about how markets work. This is a topic that we frequently discuss and further analyze with our membership. Please allow me to share a portion of a comment from Avi Gilburt from last year:

“When stocks bottomed in March of 2009 or in March 2020 and began two of the strongest rallies in history, was that due to earnings? If you are being honest with yourself, then you know the answer is absolutely not. In fact, the stocks bottomed at some of the worst earnings reports of their time.

Let’s take this one step further. How many times have you seen good earnings announced, yet the stock declined? Or vice versa? As an example, Netflix blew out their earnings, yet the stock was down over 1% the next day. But, what do the talking heads parrot in unison? ‘The information was already priced in’. And, yes, each and every person listening or reading these talking heads simply nod in acceptance. Have any of you actually considered what this really means?

If you believe that the blow-out earnings were already ‘priced in’, then why were the analysts surprised with the ‘blow-out’ nature of these earnings? If you believe that the blow-out earnings were already priced in, then you believe that the market is omniscient and knew what the earnings would be before they were announced and pushed the stock price up with the expectation of blow-out earnings.”

Avi discussed this much more in depth in the article published earlier this year which you can read here: Sentiment Speaks: It’s Time To Invest Based Upon Earnings

Risks And Conclusion

What does this mean for us then? If you mesh the fundamental viewpoint presented above with technical chart shown, then you can see the intersection of these is providing a high probability setup to trade with specific risk vs. reward in sight.

Should AMD break below the low struck in October of this year then we would revise this outlook. As well, the highest probability trade is to wait for the initial 5 wave structure up to develop for wave ‘i’ of C of (A) and then enter on a wave ‘ii’ pullback.

To directly answer the question, “What Is Priced In”?, we can say that we see AMD following a protracted corrective pattern that should take it into 2024 or farther before finding a more significant low in price. In the meantime, as Lyn Alden astutely pointed out, there will be many trading opportunities along the way.

I would like to take this opportunity to remind you that we provide our perspective by ranking probabilistic market movements based upon the structure of the market price action. And if we maintain a certain primary perspective as to how the market will move next, and the market breaks that pattern, it clearly tells us that we were wrong in our initial assessment. But here’s the most important part of the analysis: We also provide you with an alternative perspective at the same time we provide you with our primary expectation, and let you know when to adopt that alternative perspective before it happens.

There are many ways to analyze and track stocks and the market they form. Some are more consistent than others. For us, this method has proved the most reliable and keeps us on the right side of the trade much more often than not. Nothing is perfect in this world, but for those looking to open their eyes to a new universe of trading and investing, why not consider studying this further? It may just be one of the most illuminating projects you undertake.