Advanced Micro Devices (AMD) Pre-earnings Analysis
Chart done on hourly timeframe. AMD has established itself right along side Nvidia as one of the most prominent names amongst semiconductor companies involved in artificial intelligence chips. The company had a phenomenal start to the year, gaining about 75% from its lows, but it has given back much of those gains in recent weeks. One reason for this correction is AMD’s outrageous price to earnings ratio, which is currently at 293x, much higher than the healthy average of 15-25x. This inflated valuation can be attributed to the built up excitement around artificial intelligence, and it could be the market pricing in projections for the stock, but nonetheless it is a hard number to justify. Year over year growth is only set about 1.24% in terms of revenue, which will be easy for AMD to achieve, but it also means that coming inline with expectations alone won’t be enough to move the stock higher. Buyers are going to want to see significant revenue growth and profitability to pay attention to the stock. AMD is trading at double the valuation it was a year ago, so posting a flat growth number wouldn’t make sense.
There are some things that can save them. Demand for artificial intelligence chips has gone ballistic. Nearly every company on the market is talking about involving AI into their business, which will boost sales for companies like AMD and Nvidia. Therefore, AMD’s forward guidance and projections for 2024 will be the ultimate number that investors pay attention to. Markets want to see how much of the artificial intelligence market share will AMD capture this year, chances are they’ll be capturing a big portion.
Option chain analysis
AMD’s option chain expiring on May 3rd 2024 currently reflects an implied volatility reading of 99%, which translates to about a $14.00 move from the underlying stock. Which direction will depend on the earnings results.