Short Trade Idea
Enter your short position between $235.87 (a minor horizontal support level) and $241.95 (the intra-day low of a massive bullish candlestick).
Market Index Analysis
- Advanced Micro Devices (AMD) is a member of the NASDAQ 100, the S&P 100, and the S&P 500 indices.
- All three indices remain near record highs, but bearish momentum is rising.
- The Bull Bear Power Indicator of the NASDAQ 100 is trending lower, approaching a bearish crossover.
Market Sentiment Analysis
Equity markets dropped yesterday amid concerns about AI valuations and debt levels. AMD reported earnings after the bell that disappointed investors on margins, sending S&P 500 and NASDAQ 100 Index futures lower this morning. Democrats won core races, where the New York mayoral elections might shake confidence. Toyota reported its second consecutive earnings miss, citing US tariffs, while markets await earnings reports from Qualcomm, McDonald’s, and Robinhood today. Investors will receive ADP payroll forecast data today, along with updates on ISM services activity, but the most prolonged government shutdown in US history is delaying core reports.
Advanced Micro Devices Fundamental Analysis
Advanced Micro Devices is an industry-leading chip manufacturer at the forefront of the global AI race. It is also a core player in the gaming sector, where its hardware is among the best for high-end users, and a significant provider of server hardware to data centers.
So, why am I bearish on AMD after its impressive earnings reports?
Revenues clocked in at $9.25 billion with earnings per share of $1.20, beating estimates of $8.74 billion and $1.17, respectively. The earnings beat came despite lower prices for its M1355 chip, but high-level partnerships with Oracle and OpenAI. Still, Amazon exited its AMD stake, valuations remain excessive, and the Return on Invested Capital (ROIC) is below the Cost of Capital (WACC), confirming value destruction. I expect a mean reversion in AMD’s share price amid a broader market correction in the short term.
Advanced Micro Devices Fundamental Analysis Snapshot
The price-to-earnings (P/E) ratio of 131.61 makes AMD an expensive stock. By comparison, the P/E ratio for the NASDAQ 100 is 39.88.
The average analyst price target for AMD is $249.33. This suggests no upside potential with rising downside risks.
Advanced Micro Devices Technical Analysis
Today’s AMD Signal
Advanced Micro Devices Price Chart
- The AMD D1 chart shows price action breaking down below its horizontal support zone.
- It also shows price action between its ascending 0.0% and 38.2% Fibonacci Retracement Fan levels.
- The Bull Bear Power Indicator is bullish with a negative divergence.
- The average bearish trading volumes are higher than the average bullish trading volumes.
- AMD advanced with the NASDAQ 100 Index, a bullish confirmation, but bearish momentum has risen.
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My Call on Advanced Micro Devices
I am taking a short position in AMD between $235.87 and $241.95. Valuations are excessive, profit margins are under pressure, and AMD has a dismal return on invested capital, trailing most peers. I see a mean reversion on the horizon.
- AMD Entry Level: Between $235.87 and $241.95
- AMD Take Profit: Between $203.01 and $213.20
- AMD Stop Loss: Between $247.39 and $257.00
- Risk/Reward Ratio: 2.85
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