Upadated – 01 October 2020 | 12:26 PM IST
Advanced Micro Devices is on target to shut out September lower.
The chipmaker has fallen 10% this month, while the SMH semiconductor ETF has remained largely flat.
Longtime AMD bull Todd Gordon, founding father of Trading Analysis.com, sees strong demand and solid technicals as laying the groundwork for a breakout within the fourth quarter.
“We are looking ahead to those new next-gen Zen 3-based CPUs. … most are considerably looking forward to the present within the tech community,” Gordon told CNBC’s “Trading Nation” on Tuesday. “Analysts were expecting sales to chill before those new chips, but the purchasers still purchase the AMD chips even before the new launch.”
Gordon expects AMD to expand market share, eating into Intel’s market slice of the chips space. Increased demand for PCs and chips within the work-from-home environment should also contribute to gains, he said.
“AMD is predicted to report earnings on Oct. 27. immediately they need a trailing [price-earnings ratio] of about 160 which is sort of expensive. But, keep this in mind, they’re expected to extend their earnings per share by about 72% from last year to the present year, and they’re still expected to grow another 51% next year. the corporate is merely trading 45 times forward earnings with a 50% increase in earnings per share so I will still be bullish here,” said Gordon.
Instead of seeing recent weakness as a warning, Gordon sees it as a chance – he said the pullback to the mid-$70s coincides with the 50-day moving average and will act as support.
“I own the stock, I might consider adding to the stock. I hold about 3.5% AMD position in my portfolio which is sort of large, but I wouldn’t mind picking that up to 4-4.5%,” said Gordon.
One way to play AMD, he said, is to place on an options trade that takes you thru quite half the fourth quarter. He’s watching buying the 86 call with Nov. 20 expiration and selling the 100 strike call.
“It’s a $15 spread that you’ll pay $4.18 cents or $418. Max potential profit would be $1,082,” he said Tuesday afternoon
AMD was trading Wednesday at quite $81. A move to $100, his 100 strike call, implies a 22% upside.