Sign InAMD Stock Faces Bearish Trend Amid High Valuation and Recent Downgrades, Analysts Suggest 'Hold'
Summary
As of January 8, 2025, Advanced Micro Devices, Inc. (AMD) is reflecting a bearish trend with its stock closing at $121.84, significantly below key moving averages and under pressure from a high PE ratio and recent downgrades, suggesting a cautious 'Hold' stance while highlighting the need for improved earnings to justify its current valuation.
Technical Analysis
Advanced Micro Devices, Inc. (AMD) closed at $121.84 on January 8, 2025, down 4.31% from the previous day. The stock is exhibiting a bearish trend, with the current price considerably below both the 50-day and 200-day moving averages of $136.06 and $152.34, respectively. This indicates a bearish sentiment and suggests that AMD is underperforming over both short and long-term horizons.
The Relative Strength Index (RSI) at 46 indicates that the stock is neither overbought nor oversold, but it leans slightly towards a potential oversold condition should the price decrease further. The Moving Average Convergence Divergence (MACD) is negative at -6.39, reinforcing the bearish outlook. Volume on the last trading day was 45.14 million, surpassing the average volume of 36.79 million, indicating significant selling pressure, partly due to recent downgrades.
Short-term support is at $121.41, which the stock has hovered near, while resistance is marked at $126.91. With the Average True Range (ATR) at 3.84, AMD may experience moderate volatility in the near term.
Fundamental Analysis
AMD's fundamentals raise concerns due to its high price-to-earnings (PE) ratio of 107.82, suggesting an overvalued stock relative to its earnings potential. The company’s EPS stands at $1.13, which places AMD under pressure to significantly boost earnings to justify its valuation.
Recent news of a double downgrade by HSBC, due to skepticism over AMD's AI revenue and competitive position against Nvidia, has further impacted sentiment. Nevertheless, options activity suggests some bullish outlook from certain traders, though it contradicts the overall negative market sentiment.
The discounted cash flow (DCF) model values AMD at approximately $62.64, indicating that the current market price is significantly above its intrinsic value.
Short-term and Long-term Predictions
For the next trading day, the stock could potentially stabilize near current support levels or experience further declines if negative sentiment persists. Over the upcoming week, AMD may face resistance if it attempts to rally, with potential range-bound trading between the support and resistance levels.
Long-term investment potential appears challenging; AMD's high valuation, combined with competitive pressures in the AI and GPU markets, might limit upside unless the company can demonstrate substantive growth or improved earnings. Market expectations reflected in analyst price targets remain varied, with a consensus target lower than current levels but higher than DCF valuation.
Overall Evaluation
Considering the technical and fundamental aspects, AMD currently aligns more with a 'Hold' candidate. While recent downgrades present a bearish picture, some investors maintain a bullish stance expressed through options activity. However, unless AMD shows improved earnings and competitive prowess, especially in artificial intelligence, the current valuation appears unjustified for a 'Buy,' and the intrinsic valuation does not advocate a 'Sell' near support levels.
