Part 4

In order to help our followers maximize their profitability, we have decided to analyze the performance of some of the biggest companies within the two ETFs (SPY & XLV).

Advanced Micro Devices (AMD)

Company Background

Advanced Micro Devices, Inc. (AMD) is an American multinational semiconductor company based in Santa Clara, California, that develops computer processors and related technologies for business and consumer markets. While it initially manufactured its own processors, the company later outsourced its manufacturing, a practice known as going fabless, after GlobalFoundries was spun off in 2009. AMD’s main products include microprocessors, motherboard chipsets, embedded processors and graphics processors for servers, workstations, personal computers and embedded system applications.

Current position – Financial Performance & Future Growth prospects

Advanced Micro Devices has definitely evolved from a pure consumer-PC chip provider into an enterprise-focus company in recent years, which has in turn strengthened its position in the semiconductor market. AMD has also managed to emerge as a strong challenger to NVIDIA’s dominance in the graphic processing unit or GPU market with its Radeon technology.

AMD’s Q3 results benefited from solid uptake of Ryzen and EPYC server processors, courtesy of increasing proliferation of AI and Machine Learning (ML) in industries like cloud gaming and supercomputing domain. Growing clout of AMD’s products in the data center vertical, driven by work-from-home and online learning trends, remains a key catalyst. Also, partnerships with Amazon, Microsoft, Baidu and are opening newer business avenues.

Launch of 7 nanometer (nm)-based AMD Radeon RX 5700-series gaming graphics card family featuring RDNA architecture, high-speed GDDR6 (Graphics Double Data Rate type 6) memory and support for the PCIe 4.0 interface, has helped the company increase presence among gamers.

Further, AMD Radeon Instinct family of GPU products are gaining traction in data center applications, including deep learning training and traditional high-performance computing (HPC) workloads.

Additionally, AMD EPYC 7001 Series of high-performance processors is helping AMD gain share in the server market. Further, AMD EPYC Embedded 3000 Series of processors addresses new markets including, networking, storage and edge computing devices.

One of the most interesting and important developments for AMD was the recent announcement that it has entered into a definitive agreement to acquire Xilinx for $35 billion in an all-stock transaction. The buyout will significantly help in expanding AMD’s data center business.

In consumer-PC market, AMD has become a key challenger to Intel courtesy AMD Ryzen desktop processor family. The company’s desktop-based processor offerings include Ryzen and high-end Ryzen Threadripper processors, among others. AMD Athlon and AMD PRO series of processors cater to commercial and consumer desktop PC market.

AMD’s processors are primarily powered by the company’s proprietary “Zen” CPU and “Vega” GPU architectures. Santa Clara, CA-based, AMD generated revenues of $6.731 billion in 2019. The company reports operations under two segments — Computing and Graphics, and Enterprise, Embedded and Semi-Custom.

Computing and Graphics segment includes desktop and notebook processors and chipsets, discrete GPUs and professional graphics. This segment generated revenues of $4.709 billion in 2019.

Enterprise, Embedded and Semi-Custom segment includes server and embedded processors, dense servers, semi-custom SoC products, engineering services and royalties. This segment generated $2.02 billion in 2019.

Technical Analysis

By looking at the daily chart, we can see the strong bullish rally that has occurred in the last 6 months taking the price from the March 19th lows of around $37 to the highs at $94, thus representing a 154% increase in 5 months. The all-time highs were reached in the beginning of September and ever since then, we have seen a volatile roller-coaster price action for the stock and the SPY ETF altogether. An initial correction took the price down with over 21% in less than 2 weeks throughout the first half of September. Then, we saw another sharp appreciation where the price made an attempt to re-test the all-time highs and the psychological resistance lying there. However, the stock failed to break the $90 resistance in the first half of October, which was then followed by a sharp drop of the price in the lead up to the US Presidential Elections. Now, with the elections behind us the stock has made another (3rd) attempt to continue its outstanding bull rally, but it seems that its currently experiencing difficulties, thus threatening to form a Triple Top reversal pattern on the daily chart. Does, this remind you of something? Well, that is exactly what we got from the SPY and PYPL daily charts – a relatively weaker attempt for a push above the ATH, with two prior strong rejections at the current levels.

We would wait for a short-term pullback towards the $75 level and start buying just above the support at $74. Should the price drop further, we would be interested in adding more to our buy positions at the $67 and $58, which would improve our average cost basis. Our first take-profit target would be set at $100, followed by the next target at $112 where we would be fully cashing in our profits.

The stock is currently sitting at the $86 mark after rebounding from the strong diagonal, horizontal and dynamic trendline support around $74. The initial downward correction was anticipated in the lead up to the elections as when there are high levels of uncertainty in the market, then even the best stocks out there could become vulnerable. Additionally, lets not forget that PYPL’s stock has already appreciated with the staggering 154% from its March lows, thus these current corrective movements, could very well be considered healthy and necessary for the continuation of the uptrend. However, it is of essential importance to note that if the stock fails to resume its uptrend by pushing to a higher high soon, then this might create a very strong reversal technical pattern called a Triple Top formation. The neckline of this figure would be around the $75 mark and a potential break there could open up the doors for a much larger decline towards the $60 level.

While we believe that the stock market in the US is currently holding a lot of intrinsic risks – COVID-19, presidential elections, the economic recovery etc. – and that we could be in for a sideways and choppy price action in the coming months, we see the winners continuing to win. We remain cautiously bullish on AMD’s stock and believe that any profit-taking corrections and potential larger price declines would give us a great opportunity to buy the stock at a good discount and hold it for the long term. This, in turn would give us a chance to maximize our profits to the upside, once the stock resumes its strong uptrend. Furthermore, some of the technical indicators that we are monitoring closely (50 DMA, 100 DMA, Bollinger Bands, RSI etc.) are currently showing that the price might not have enough steam to break the current diagonal trendline, horizontal and psychological resistances that it faces. The exhaustion of the recent up move could be signaling that a potential short-term decline could be just around the corner. Thus, we are not advising our followers to go ahead and start buying the stock right now at its current highs, but to rather wait for a better entry point that we believe will present itself in the coming days and weeks.

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