AMD could benefit from Nvidia delay in China

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  • AMD price action looks likely to score fourth straight week of gains.
  • S&P Global PMIs show Services overperforming, while Manufacturing underperforms.
  • AMD gains at Friday open, while NASDAQ Composite fades.
  • The $127 to $133 supply zone from May and June becomes primary bull target.

Advanced Micro Devices (AMD) stock has opened less than 1% higher at the open, but the technicals show that bulls could still push the share price into the supply zone ranging from $127 to $133 soon enough.

The Dow Jones Industrial Index gained 0.3% at the start of trading on Friday, following Thursday’s Thanksgiving break, but the NASDAQ Composite opened 0.1% lower, possibly in a bid to become part of America's Black Friday shopping holiday.

The S&P Global Purchasing Managers Index (PMI) for November, out on Friday, shows that Services reported at 50.8, above the 50.4 reading that was expected. The Manufacturing PMI is exactly opposite – printing at 49.4 rather than the consensus of 49.8.

AMD stock news

News on the AMD front is lacking this week. The semiconductor stock has been rallying for its fourth straight week following Q3 earnings that demonstrated the stock was performing well despite a cyclical downturn among chipmakers.

On October 31, AMD reported normalized funds from operations of $0.70, a slight beat of 2 cents above consensus. Revenue of $5.8 billion arrived more than $106 million ahead of consensus.

Nvidia (NVDA), AMD’s primary competitor, is discouraging shareholders after a wildly optimistic earnings report on Tuesday. Nvidia beat its revenue consensus for the most recently completed quarter by more than $2 billion and likewise raised its sales outlook for the current quarter by more than $2 billion above consensus to near $20 billion.

Nvidia stock has sold off on Friday after the company said its artificial-intelligence-focused (AI) HGX H20 chip, which was created in order to circumvent US government chip sanctions on China, would be delayed until the first quarter of next year. The L20 PCIe and L2 PCIe chips, however, are largely thought to be on schedule to launch in China. Huawei Technologies is expected to reap the reward of Nvidia AI chips being either sanctioned or delayed in the Chinese domestic market.

In the meantime, this may also create a path toward greater sales of AMD’s MI300A and MI300X AI-geared chips. CEO Lisa Su has said that the MI300 chip is on course to be the fastest product in the company’s history to ramp up to $1 billion in sales.

 

AI stocks FAQs

First and foremost, artificial intelligence is an academic discipline that seeks to recreate the cognitive functions, logical understanding, perceptions and pattern recognition of humans in machines. Often abbreviated as AI, artificial intelligence has a number of sub-fields including artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. The end goal of the entire field is the creation of artificial general intelligence or AGI. This means producing a machine that can solve arbitrary problems that it has not been trained to solve.

There are a number of different use cases for artificial intelligence. The most well-known of them are generative AI platforms that use training on large language models (LLMs) to answer text-based queries. These include ChatGPT and Google’s Bard platform. Midjourney is a program that generates original images based on user-created text. Other forms of AI utilize probabilistic techniques to determine a quality or perception of an entity, like Upstart’s lending platform, which uses an AI-enhanced credit rating system to determine credit worthiness of applicants by scouring the internet for data related to their career, wealth profile and relationships. Other types of AI use large databases from scientific studies to generate new ideas for possible pharmaceuticals to be tested in laboratories. YouTube, Spotify, Facebook and other content aggregators use AI applications to suggest personalized content to users by collecting and organizing data on their viewing habits.

Nvidia (NVDA) is a semiconductor company that builds both the AI-focused computer chips and some of the platforms that AI engineers use to build their applications. Many proponents view Nvidia as the pick-and-shovel play for the AI revolution since it builds the tools needed to carry out further applications of artificial intelligence. Palantir Technologies (PLTR) is a “big data” analytics company. It has large contracts with the US intelligence community, which uses its Gotham platform to sift through data and determine intelligence leads and inform on pattern recognition. Its Foundry product is used by major corporations to track employee and customer data for use in predictive analytics and discovering anomalies. Microsoft (MSFT) has a large stake in ChatGPT creator OpenAI, the latter of which has not gone public. Microsoft has integrated OpenAI’s technology with its Bing search engine.

Following the introduction of ChatGPT to the general public in late 2022, many stocks associated with AI began to rally. Nvidia for instance advanced well over 200% in the six months following the release. Immediately, pundits on Wall Street began to wonder whether the market was being consumed by another tech bubble. Famous investor Stanley Druckenmiller, who has held major investments in both Palantir and Nvidia, said that bubbles never last just six months. He said that if the excitement over AI did become a bubble, then the extreme valuations would last at least two and a half years or long like the DotCom bubble in the late 1990s. At the midpoint of 2023, the best guess is that the market is not in a bubble, at least for now. Yes, Nvidia traded at 27 times forward sales at that time, but analysts were predicting extremely high revenue growth for years to come. At the height of the DotCom bubble, the NASDAQ 100 traded for 60 times earnings, but in mid-2023 the index traded at 25 times earnings.

 

AMD stock forecast

AMD stock is steadily conquering territory after beating earnings expectations at the end of October. After bottoming just above $93 in late October, AMD stock is now on pace to enter the $127 to $133 resistance zone that shunted bulls back in May and June of this year.

The 9-day Simple Moving Average (SMA) has created distance with its 21-day counterpart, and the fast pace of the current rally makes its quite likely that the semiconductor stock could produce a new annual high before the year is out. 

AMD daily stock chart
 

A glance at the weekly chart shows us that overcoming the year’s high near $133 could give ambitious traders the idea that the resistance point from November 2021 around $160 is possible.

Traders should expect some type of pullback before then however. The weekly Relative Strength Index (RSI) gives a reading of 61, which is not yet at overbought levels, while the daily RSI gets closer at 66. 70 is normally the threshold for an overbought reading.

AMD weekly stock chart

 



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