Key points
- AMD shares have diverged from both semiconductor peers and the broader market in recent weeks.
- However, it appears that they are starting to consolidate and the momentum has shifted to the bulls.
- Investors should look out for another set of green days in the coming week, which could signal the start of the recovery.
- 5 stocks we prefer to Intel’s
After hitting a new all-time high early last month, it looked like stocks were Advanced Micro Devices Inc NASDAQ:AMD they would continue to recover until the end of the quarter. However, having lost as much as 23% since then, they have certainly started the second quarter on the back foot and investors are wondering whether this is just a healthy, if a little scary, pullback, or whether it could be the start of a broader downtrend. .
It’s worth noting that while AMD was down, the rest of the market, as seen through the benchmark S&P 500 index, was up. Considering how closely aligned it had been, this was an interesting divergence. As an example, the S&P 500 hit a new all-time high just last week.
Divergence from competitors
Of course, AMD’s biggest semiconductor competitor, Nvidia Corporation NASDAQ:NVDA, has yet to surpass the high it reached in early March, but unlike AMD, it made another attempt just last week and came very close. Heading into the final two trading days of the week, Nvidia shares are hovering less than 10% below last month’s peak; nothing a busy day couldn’t take care of.
So what’s the deal with AMD? It has undoubtedly benefited from the advent of artificial intelligence (AI) over the past year, with a March-to-March gain of 190%, but has at times struggled to match Nvidia’s forward momentum.
Problems with China
Its footprint in China is one example. While Nvidia is about to begin mass production of its AI chip for the Chinese market, AMD is still struggling to get approval from the US Bureau of Industry and Safety. This news, appearing around this time last month, was a key factor in the stock’s divergence throughout March.
It didn’t help that the Chinese government then announced that it was considering blocking the use of AMD microprocessors in China altogether. Intel Corp NASDAQ: INTC They also found themselves on this list, but Nvidia did not, and they are on track to begin production for the Chinese market this quarter.
While not yet final, the possibility of AMD being barred from China, if it can get the green light to sell there, has understandably spooked investors. But since stocks have failed to hit a new low in nearly two weeks, there’s certainly a sense that the worst-case scenario has been created and that they’re not starting to solidify.
At Wednesday’s close, they were up 5% from the low, with clear momentum starting to emerge on supply. The stock’s relative strength index (RSI), a measure of whether it is overbought or oversold, has stopped its downward spiral and is starting to trend north, as is the stock’s MACD. Both are considered reliable indicators of a stock’s recent trading momentum and can help support the thesis that momentum is swinging from bears to bulls.
Bullish factors to consider
There’s also the fact that AMD has avoided suffering a single downgrade in the last month, despite this new development. In fact, it should be said that just three weeks ago, the teams at Mizuho and DZ Bank were reiterating their Buy ratings, with Mizuho even raising their price target from $200 to $235.
With AMD shares closing just under $181 on Wednesday, that indicates a targeted upside of about 30%. It’s definitely an interesting time to be on the sidelines considering a position here. With the rest of the market continuing to trend north and the latest analyst comments reiterating strong upside potential, it must be said that clear recovery ground is starting to emerge. Investors should watch out for AMD stock to continue seeing green days into next week, with a close above $188 suggesting the rebound has well and truly begun.
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