When an AI Stock Isn’t Caught Up in the Hype

Last week’s earnings from Nvidia (NVDA) showed that it is converting the AI boom into hard cash.

When we checked out NVDA yesterday, we saw that its revenue had doubled from a year ago, with further growth expected ahead.

However, not all companies caught up in the hype are having similar success.

Advanced Micro Devices (AMD) is the one we’ll look at today.

Its share price doubled in the first half of this year. But its Q2 earnings showed that its revenue was flat compared to Q1… and down 18% from 12 months ago.

Yet AMD has the potential to capture more of the AI space in the future. So let’s see how things can play out from here…

Microsoft Team-Up

AMD’s rally started back in October last year.

Although you can’t see it on the chart below, that rally came off the back of a brutal year for AMD. It lost two-thirds ($100 billion) of its value.

Advanced Micro Devices (AMD)

Source: eSignal

However, it went oversold and buying momentum returned. So AMD’s stock price established a base and began to rally.

This coincided with the Relative Strength Index (RSI) breaking out of its lower range and into the upper half of its band.

As the chart shows, this pattern repeated for each of AMD’s up legs.

And each of those peaks reversed with the RSI retracing from overbought territory (upper grey dashed line).

After retracing from its peak at ‘3,’ though, you can see how strongly AMD rallied in May.

Despite briefly selling off after announcing its Q1 earnings beat, AMD gained over 60% in just four weeks. That was in part due to PC sales, a key AMD market, showing signs that it was coming out of the doldrums.

However, what really drove AMD’s burst higher was the news that it was teaming up with Microsoft (MSFT) to develop AI chips.

That put AMD’s rally into overdrive.

As we saw when we looked at AMD in July (orange arrow), though, that strong move reversed (‘4’). The RSI and stock price headed in different directions.

Higher highs (upper orange line) versus declining momentum (lower orange line) pulled AMD’s stock price down.

Take another look:

Advanced Micro Devices (AMD)

Source: eSignal

Yet when we checked in on AMD on July 19, the RSI had just broken back into its upper range.

And the 10-day moving average (MA, red line) had turned higher and was holding above the 50-day MA (blue line).

At the time, it looked like AMD was setting itself for another run higher. But since then, AMD has drifted lower.

So what am I looking for from here?

Stuck in Its Lower Range

After crossing below the 50-day MA, the 10-day MA has continued to track lower. The 50-day MA rolled over too.

AMD’s mixed Q2 earnings announcement compounded that fall. Despite beating analysts’ earnings per share (EPS) forecasts, the hype around its AI prospects has yet to find its way into AMD’s coffers.

For AMD’s rally to resume from here, it is vital that buying momentum returns. We’ll need to see the RSI return (and stay) in the upper half of its band.

If the RSI instead continues to drift and remains stuck in its lower band, AMD’s pullback may develop into a bigger down move.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict

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