Breakout Watch: Advanced Micro Devices

Recent Performance

That rally continued on Monday, with AMD surging another 15 percent to close at a new 52-week high of $6.95. Even prior to the recent breakout, Advanced Micro Devices shares had been moving aggressively higher throughout 2016, with just a handful of shallow pullbacks. Year-to-date, the stock has soared around 133 percent and over the last 52 weeks, Advanced Micro Devices is up more than 300 percent.

In late May, Advanced Micro Devices finally broke through long-term resistance around $4.00, and it has been off to the races ever since. Investors will want to take note of how volume has picked up substantially in the name ever since the key $4.00 technical level was breached; the huge move over the last two trading sessions was accompanied by extremely heavy volume. This is usually a sign that big institutions are acquiring shares and may point to continued momentum. On Monday, around 118 million Advanced Micro Devices shares traded hands compared to a three-month daily average of just over 26 million.

Related Link: Expert: This Stock Is The Best Swing Trade Of 2016

Friday's Move

The catalyst for Friday's rally was the company's strong second-quarter earnings results. Advanced Micro Devices posed a loss for the quarter of $40 million or $0.05 per share, versus a loss of $131 million or $0.17 per share, in last year's corresponding quarter. This beat Wall Street analysts' consensus EPS estimates calling for a loss of $0.08. Sales in the period were $1.03 billion, up from 0.94 billion last year. Investors also were reacting to positive guidance from the chip-maker, with Advanced Micro Devices saying it expects 18 percent sequential revenue growth in Q3 and low-single digit growth on a year-over-year basis. The company also said that it expects to achieve non-GAAP operating profitability in the second-half of the year, driven by demand for its new line of chips.

Commentary

Advanced Micro Devices' CEO Lisa Su said, "Based on the strength of our semi-custom products and demand for our latest Radeon RX GPUs and 7th Generation A-Series APUs, we are well positioned to drive growth and market share gains in the second half of the year." The continued rally on Monday to open the trading week, was likely due to continued investor optimism regarding the company's second-half outlook, but there was also some chatter that a Forbes article helped to trigger the continued run in the share price.

In a note, the company revealed to Patrick Moorhead of Moor Insights & Strategy, that it has an existing manufacturing agreement for the company's 14nm processors with Samsung (SAMSUNG ELECTRONIC KRW5000 SSNLF) "if needed." Specifically, the note said, "AMD has strong foundry partnerships and our primary manufacturing partners are GLOBALFOUNDRIES and TSMC. We have run some product at Samsung and we have the option of enabling production with Samsung if needed as part of the strategic collaboration agreement they have with GLOBALFOUNDRIES to deliver 14nm FinFET process technology capacity."

Investor enthusiasm surrounding the stock was likely further buoyed by the association with Samsung. Moor wrote that, "all in all, this lowers the risk to Advanced Micro Devices and their products and puts them in a much better position on CPUs, APUs and SoCs then they have been in years."

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