Market Insights

Advanced Micro Devices was an early mover in the AI boom. Now, after a long period of stagnation, traders may see potential for the chip stock to play catch-up.

Thursday, October 10, could be a pivotal session. That’s when CEO Lisa Su plans to unveil the company’s latest Instinct accelerators and EPYC server processors. There could also be updates on AMD’s associated products and services, which include its ROCm software ecosystem. The event, known as “Advancing AI 2024,” starts at 12 p.m. ET.

The big question is position versus leader Nvidia (NVDA), which last week cited “insane” demand for its upcoming Blackwell chip. Some analysts have noted that AMD’s market share in AI is far below its comparable rank in traditional computing markets. That could make executives highlight potential for adoption of its technology, which could have a big impact on its longer-term revenue growth.

Sentiment is also potentially turning in favor of chipmakers. The Philadelphia Semiconductor Index ($SOX) outperformed the broader market by a wide market in the first half. It stalled in July and consolidated, but has climbed 15 percent in the last month. The index is also trying to move above a potentially important resistance level from mid-August. Traders may look for buyers to get more active if a breakout occurs.

AMD’s Price Gap

AMD, in particular, has some potentially important patterns.

First, the stock gapped lower on July 17. That matched a drop in the bigger chip space on worries the U.S. government might limit business with China.

Second, AMD jumped on July 31 after quarterly results beat estimates. However it failed to hold the gains and several analysts lowered their price targets on worries that AMD was lagging NVDA. That could heighten the importance of Thursday’s event. A convincing presentation could potentially bolster confidence in the growth story, while a disappointing message could prove the naysayers right.

Another potentially noteworthy pattern is the 200-day moving average. AMD is near this long-term trend marker. The average is also rising. Could that suggest it’s still in a long-term uptrend, with the potential to start moving again.

AMD Options

Given the potentially significant risks, investors may think about using options to manage risk in AMD.

For example, they could notice the July high of $187.28 and look for prices to approach that level in the event of a positive response.

Options traders may consider a strategy like a vertical call spread to position for such a move. For example, the 11-October 180 calls expiring this week were offered for $1.26 yesterday. The 11-October 185 calls had a bid of $0.54.

They could potentially purchase the lower strike calls and sell an equal number at the higher strike. It would result in a cost of about $0.72, based on yesterday’s prices.

The strategy could expand to $5 if AMD closes at $185 or higher on expiration. That’s a potential gain of 594 percent from the stock moving less than 9 percent. The breakeven price would be $180.72, and the entire position will expire worthless if the shares stay below $180.

AMD ended Monday’s session up fractionally to $170.97.

After Thursday’s presentation, the next catalyst could be the release of quarterly results. The date isn’t yet confirmed, but prior history suggests it may occur after the closing bell on Tuesday, October 29.

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