Advanced Micro Devices (AMD) -) has long been a favorite among technology stock investors, but even Chief Executive Lisa Su's most ardent supports weren’t likely thinking its shares would rally nearly 50% in the month of May.
Real Money analyst Bruce Kamich is among the few who predicted Advanced Micro Devices rally correctly. On May 16 he wrote that investors could see shares rise by over 30% to $127, a level it eclipsed less than two weeks later.
Kamich recently updated his analysis, including a new Advanced Micro Devices stock-price target. His outlook may make many investors unhappy.
Advanced Micro Devices hopes to capitalize on AI
The eye-popping success experienced by OpenAI's ChatGPT when it launched last December has uncorked a tidal wave of interest from companies hoping to roll out their own artificial intelligence applications.
Generative AI applications like ChatGPT have proven beneficial in searching, understanding, and developing content. Still, AI’s benefits will likely expand as companies discover its value across many more use cases.
Related: Nvidia stock jumps as Goldman adds chipmaker to 'Conviction buy' list
For example, JP Morgan Chase already uses artificial intelligence to hedge its equity risk. Healthcare companies are investigating using AI to analyze large data sets, design molecules, and predict efficacy, potentially speeding more and better drugs to market.
Investments in AI are widespread enough to spark comparisons to the dawn of the Internet Age. So much activity is happening that it is taxing existing computing infrastructure, which relies heavily on CPUs ill-suited to training and operating these AI models.
As a result, Advanced Micro Devices is moving quickly to compete in a fast-growing market for more powerful chips that can be operated more efficiently. Lisa Su's focus on AI as a significant driver of AMD's future was the big reason behind shares rallying in May.
The company's developing the MI300X, a GPU chip it hopes will allow it to win away market share from competitor Nvidia (NVDA) -) as soon as next year.
Nvidia is by far the market-leading supplier of next-generation AI chips, and demand for Nvidia's solutions is so strong that its CEO, Jensen Huang, forecasts revenue will rise 170% year-over-year in Q3 to $16 billion.
Advanced Micro Devices is already testing its MI300X with potential buyers, including Microsoft (MSFT) -). Microsoft's Azure is the second-largest cloud data solutions provider behind Amazon, so it's at the center of much of the research ongoing in AI.
Microsoft's Chief Technology Officer recently said Advanced Micro Devices is "making increasingly compelling GPU offerings that I think are going to become more and more important to the marketplace in the coming years.”
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Companies like Microsoft are likely eager to diversify their supply of AI chips away from one vendor, so unsurprisingly, AMD's stock traded higher following Microsoft's comments.
Advanced Micro Devices price charts suggest a new target
Technical analyst Kamich has analyzed price charts professionally for over 50 years. His $127 price target in May was based on his analysis of Advanced Micro Devices price and volume action, and critical technical indicators.
Kamich updated his analysis of Advanced Micro Devices on October 5, setting a new price target that's likely to leave bulls disappointed.
"The chipmaker's recent bounce has been uninspired," wrote Kamich. "Shares have trended lower from a high in June. AMD closed below the 50-day moving average line in July, and the slope of this moving average turned negative in August. AMD is only slightly above the still-rising 200-day moving average line."
Kamich also observed that on-balance-volume -- essentially a measure of up minus down day volume -- has been sideways to lower since June, suggesting sellers are dwarfing buyers. He also mentioned the moving-average convergence divergence oscillator, a momentum indicator, turned bearish in July.
That's not a bullish recipe.
He calculated a downside target of $51 using daily and weekly point-and-figure charts. That's disconcerting, given Advanced Micro Devices are hovering a bit above $100.
Point-and-figure charts don't predict when stocks will achieve specific price targets. Nevertheless, his analysis suggests that traders should be wary.
"Avoid the long side of AMD as further declines seem likely in the weeks and months ahead," concluded Kamich.
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