XLNX - Keep Buying AMD Stock as Charts Favor More Gains
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I have pointed this out before and will do so again, because Advanced Micro Devices (NASDAQ:AMD) stock is known for making massive moves to the upside in a short period of time, then consolidating for several months or quarters.
AMD stock recently repeated this pattern, ripping to new highs last month. However, it has since come back under pressure.
After consolidating in a wide range for almost a year, AMD stock ripped higher by more than 34% in just six trading sessions. That came on a high-volume burst, which led the stock to all-time highs.
Still down 15% from this highs though and this stock has many bulls rethinking their long position. Not to worry though. Like Nvidia (NASDAQ:NVDA), AMD continues to enjoy long-term secular growth, while at the same time, eating into Intel’s (NASDAQ:INTC) market share.
Breaking Down Advanced Micro Devices
Why do I like AMD stock? Well, it’s pretty simple: The growth.
The company sports trailing 12-month revenue growth of roughly 75%. For the current year, consensus expectations call for almost 60% growth. However, the issue of 2022 and beyond then crops up. Forecasts call for 17.5% revenue growth in 2022 and 13% growth in 2023.
First, that’s several years of double-digit revenue growth and 17.5% is certainly nothing to balk at. That said, after growing revenue by 45% in 2020 and with forecasts calling for 60% growth this year, 17.5% is going to feel like a real slow down.
Or at least the market could interpret it like that.
My issue is that analysts have been woefully conservative with AMD. The same is true for Nvidia. Listen up, because this part is important.
Despite knowing how much momentum AMD was riding as it entered 2021 — undeterred by the novel coronavirus pandemic — analysts expected less than $10 billion in revenue for this year. That figure is now at almost $16 billion!
At the start of this year, analysts expected next year’s revenue to be around $12 billion. That figure is already north of $18 billion. In a span of just a few quarters, these estimates have exploded higher. The same thing happened for fiscal 2020 before it was in the books.
So my argument is, why bet against a winning entity? AMD clearly has the formula for growth, even if the estimates can’t keep up.
AMD Does More Than That
It’s not just revenue growth that has me excited here. CEO Lisa Su has done so much to turn this company around over the years.
Revenue in 2017 stood at $5.3 billion, while the trailing 12 months boasts sales of $13.3 billion. That’s up 150%, which is great. But operating income in the same periods stand at $204 million and $2.5 billion, respectively, a more than 10-fold increase.
Net income exploded from $43 million in 2017 to $3.43 billion. The increases have resulted in booming free cash flow and margin. It’s also allowed the company to pay down debt, which has gone from $1.4 billion at year-end 2017 to just over $500 million at year-end 2020.
It also put AMD in position to acquire Xilinx (NASDAQ:XLNX) for $36 billion in an all-stock deal.
That will have an impact on AMD stock in the intermediate term, but it should only help bolster AMD’s financials in the future. Speaking of the stock price, let’s look at the chart.
Trading AMD Stock
Click to Enlarge
A look at the chart shows the explosive rally the stock underwent in late July and early August. Just for a minute, forget all the revenue growth and positive developments in the company’s financials. Instead, just look at the volume on that spike.
AMD stock exploded higher in six straight sessions with incredible volume. To me, that says “accumulation” by the big institutions.
The stock then gave use a pretty orderly “ABC” correction back down to the 50-day moving average and the former all-time high at $99.23. Now pressing higher, the bulls are regaining control.
I want to see that the stock can clear the 21-day moving average downtrend resistance, but as long as it stays above $99.23, it looks OK on the long side. Above $107.50 puts $114.50 in play, followed by $120-plus.
On the date of publication, Bret Kenwell held a long position in AMD and NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
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