4 reasons to buy and 1 reason to sell the AMD stock

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The AMD (NASDAQ: AMD) stock price held steady on Thursday as semi-conductor stocks bounced back. The shares jumped by over 5%m pushing its total market value to over $194 billion, The stock remains about 27% below its year-to-date high.

AMD potential bullish catalysts

The AMD stock price has declined sharply this year as investors predict that its business will start slowing down. Besides, analysts expect that demand for PCs will drop as the world’s economy reopens after the Covid-19 pandemic. 

However, the company has several key catalysts that will push the shares substantially higher. First, while some PC demand will decline, there is a likelihood that the high-value data center chips will hold steady as demand for big data rises. The company is already working on this demand after launching Ryzen processors with 3D V Cache technology. 

Second, while most acquisitions tend to disappoint, there is a likelihood that the Xilinx buyout will expand the company’s market share. AMD acquired Xilinx in a $35 billion in its bid to expand its adaptive computing solutions. Because of this acquisition, the company expects that its total revenue for the year will be over $21.5 billion.

Third, another catalyst for the AMD stock price is its margin expansion even as the cost of doing business increases. AMD has a gross margin of 48.25%, which is lower than that of other companies like Qualcomm, Intel, and Nvidia. Its net income margin of 19.24% is also substantially lower than that of its peers. Therefore, if the management can narrow this gap, it means that the firm will increase its earnings per share dramatically.

Finally, and most importantly, the recent sharp decline has left the stock at a reasonable valuation compared to where it was a while ago. 

AMD stock price forecast

The AMD share price declined to a low of $99.43. This was a notable level since it as the highest level on January 12th, 2021. As such, it formed important support at this point. However, a closer look shows that the stock is forming a descending triangle pattern, which is usually a bearish sign. It also seems like it is forming a head and shoulders pattern. 

Therefore, while AMD has good fundamentals, its fundamentals are not looking good. As such, there is a likelihood that it will have a bearish breakout in the near term. If this happens, the next reference level will be at $84.50.

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