Outlook _ Advanced Micro Devices
Despite AMD’s positive outlook on the second half of the year following a solid first half and a reiteration of its full year outlook that is largely driven by continued strong cloud & datacentre trends augmented by solid client and server CPU share gains and strong Xilinx revenues. Global demand slowdown can pose headwinds to global PC and server TAM directly impacting revenue, although the YTD underperformance in the stock largely reflects this.?AMD continues to gain meaningful processor market share that should help to offset some of the potential demand weakness in other verticals adding woes by China cloud demand which is also showing weakness.
Continued strength in Xilinx products into aerospace/military/industrial/test/measurement while Gaming remains mixed with strong game consoles offset by gaming GPU weakness.?Although AMD has improved its competitiveness across CPU and GPU products with Ryzen, EPYC, and Radeon platforms and is on track to improve its market share and drive meaningful revenue growth in the near term, we believe long-term share gains are less certain. In addition, AMD will have to invest heavily in operating expenses (especially R&D) in order to keep pace with the market leaders.
Demand for data centre and embedded business, which includes the Xilinx semi-custom chips, should stay strong through 2023, though lighter demand for consumer GPU chips may temper otherwise strong second half growth across other segments. AMD's gross margin may continue to expand, albeit at a slower pace given the macroeconomic effects on consumer discretionary spending for PCs. The company's pivot toward high-performance chips should reduce some of that impact. We believe Intel's struggles with the latest process nodes should enable AMD to expand its market share in server CPUs, helping to sustain sales growth at least above other business units.
In recent developments, US House Speaker Nancy Pelosi visited Taiwan, making her the most senior US government official to visit the country in 25 years. In response to her visit China has started up live fire military exercises around the somewhat isolated island, sparking worry from several concerned parties. The Taiwan Semiconductor Manufacturing Company creates chips for all sorts of electronics equipment that sees everyday use by people and companies around the world, including those crucial to the games industry. AMD also uses TSMC as part of their hardware manufacturing process, and rising tensions against TSMC will have a direct impact on AMD production and revenue. If production were to stop at the Taiwanese manufacturer, supply shortages would inevitably occur.?To ease the United States’ reliance on TSMC, President Joe Biden will sign the Chips and Science Act into law on August 9. Part of the Chips and Science Act will allocate billions of dollars in subsidies to encourage chip manufacturers to start to operate out of America, allowing them to be a bit more independent. Officially known as the CHIPs Act, the bill will effectively allocate approximately US$53 billion to companies like Intel, AMD, NVIDIA and Global Foundries, over the course of five years.
Technical Analysis
AMD has rallied swiftly from 75 levels?to 100 levels, in a very short span of time. But the trend reversal is still not confirmed as it has not closed above previous high of 110 levels or above?200 day moving average, in case the stock is able to close above 112, with significant?volume and buying the stock is considered to be neural or in consolidation phase. There are high chances that the?stock may retract from current levels, which?will serve as a high for the current rally but on a long term chart , making lower?highs and lower lows.Nearterm resistance for?the stock is 112 and 120 levels?whereas?100 day MVA?would act and be a strong support.?
领英推荐
Option Strategies
We have a neutral stance on AMD from current levels and hence suggest creating an Iron Butterfly which is explained below:
A short iron butterfly spread is a four-part strategy consisting of a bull put spread and a bear call spread in which the short put and short call have the same strike price. All options have the same expiration date, and the three strike prices are equidistant. In the example above, one 97 Put is purchased, one 102 put is sold, one 102 Call is sold and one 107 Call is purchased. This strategy is established for a net credit, and both the potential profit and maximum risk are limited. The maximum profit is realized if the stock price is equal to the strike price of the short options (center strike) on the expiration date. The maximum risk is the difference between the lower and center strike prices less the net credit received. The maximum risk is realized if the stock price is above the highest strike price or below the lowest strike price at expiration.
Indicative P/L table for the given strategy by the time of expiry, along with various possible outcomes.