Advanced Micro Devices stock forecast: AMD advances 5% following technical breakout

AMD stock surged 5% last Friday. New Street Research analyst believes Nvidia success has already been factored into AMD share prices; analyst Pierre Ferragu sees room for much greater share price growth at AMD; higher unemployment levels leave markets hoping for Fed rate cuts as market momentum remains positive.

Advanced Micro Devices’ stock is outstripping its peers on Friday as its 5% rise outpaces Philadelphia Semiconductor Index’s modest gain. After reading an analyst report which indicated doubt over future gains for one of AMD’s competitors, investors turned their eyes back towards AMD under CEO Lisa Su.

US Indices rallied on Friday after US Nonfarm Payrolls showed that early year employment gains are beginning to fade away. While June payrolls came in above consensus, April and May ones were revised much lower – prompting speculation of further interest rate cuts by the Federal Reserve; thus the S&P 500 and NASDAQ advanced by 0.54% and 0.90% on Friday respectively.

On Friday, New Street Research analyst Pierre Ferragu surprised investors when he reversed his Buy rating for Nvidia (NVDA). Ferragu’s change surprised many market watchers as Nvidia is one of the pioneers of today’s bull market that began almost two years ago in October of 2022.

Ferragu is far from pessimistic about Nvidia’s artificial intelligence (AI) prospects — in fact he thinks they’re quite the contrary! He thinks Nvidia is appropriately valued based on current guidance; during his 10-year stint covering semiconductors at Bernstein, Ferragu advised clients instead to place more importance in better priced industry stalwarts like AMD or Taiwan Semiconductor Manufacturing Company Ltd (TSM).

Farragu set an AMD stock price target at $235 over 12 months and $345 by 2026 based on his estimation that AMD would reach $10 per share earnings by that time.

AMD has underperformed investor sentiment for their AI chip business thus far this year and Morgan Stanley recently downgraded the stock on account of this situation.

Still, AMD remains on an upward path within the PC CPU market. Their next-gen Ryzen AI 300 processors were specifically created to handle AI workloads more effectively and many analysts predict they could help AMD to take away even more market share from Intel (INTC).

Investors are also carefully considering the second fabless chipmaker as its AI-enabled data center GPUs are projected to sell $4 billion this year alone.

Artificial intelligence (AI) is an academic field dedicated to mimicking human cognitive capabilities, perceptions and pattern recognition with machines. Sometimes abbreviated as AI, this field encompasses artificial neural networks, machine learning or predictive analytics, symbolic reasoning deep learning natural language processing speech recognition image recognition expert systems. At its heart lies artificial general intelligence (AGI). A machine capable of solving untaught problems without human instruction would constitute the end goal.

Artificial intelligence has many different use cases. One prominent one is generative AI platforms which rely on training large language models (LLMs) in order to answer text queries – examples such as ChatGPT or Google Bard are well known examples of this kind of use case. Midjourney is an innovative software program which generates creative images based on text created by its users. AI can also use probabilistic techniques to determine an entity’s quality or perception, like Upstart’s lending platform which employs an AI-enhanced credit rating system to evaluate applications by gathering information about career, wealth and social relationships on applicants from online resources. AI can also use data gathered through scientific studies to generate ideas for possible pharmaceuticals which will then be tested in labs. YouTube, Spotify and Facebook utilize AI applications that suggest personalized content by gathering viewing habits data and organizing it through AI applications.

Nvidia (NVDA), is a semiconductor company known for manufacturing artificial intelligence-focused computer chips and platforms used by AI engineers for software creation. Nvidia is often seen as being at the core of AI revolution since it supplies tools required for further applications of artificial intelligence. Palantir Technologies (PLTR), however, stands as an analytics company focused on “big data”. Gotham Analytics holds numerous contracts with US intelligence, who utilize its Gotham platform for data sifting and intelligence lead identification as well as pattern recognition analysis. Foundry is used by major corporations to manage employee and customer data for predictive analytics and anomaly discovery, and Microsoft (MSFT) holds a significant stake in ChatGPT creator OpenAI which remains private despite integration into Bing search engine by Microsoft (MSFT).

Following ChatGPT’s release to the general public in late 2022, many stocks associated with AI started to experience dramatic rallies – Nvidia for instance saw its stock advance more than 200% over six months following its public debut. Wall Street analysts quickly started questioning if Wall Street were being affected by another tech bubble, with legendary investor Stanley Druckenmiller who holds major investments in Palantir and Nvidia noting that these bubbles never last only six months. He noted that, should AI bubble formation develop into extreme valuations similar to what occurred with DotComs during the late ’90s, two and half years of extreme valuations should suffice before we witness its inevitable collapse; or until mid-2023 at which time there is likely not being one or even approaching one in terms of market activity. For now it seems safest to assume AI remains on solid footing. Nvidia may have traded at 27 times forward sales at that time, but analysts anticipated strong revenue growth for years ahead. At its height during the DotCom bubble years prior, NASDAQ 100 traded for 60 times earnings; by mid-2023 however it traded at 25x earnings.

AMD stock breached a technical wedge (drawn in pink below) on Friday and rallied towards its May 28 range high of $174.55 before colliding into another resistance area from April. If this hurdle can be broken through in later July sessions, bulls could continue on towards January 25’s resistance point just below $185 and take control.

Support can be found between $162.50 and $150 as well as on an ascending bottom trendline from a wedge pattern.

AMD Daily Chart.