Advanced Micro Devices (AMD) stock roars past other chipmakers to start October

• Advanced Micro Devices stock added 4.3% on Monday.
• AMD stock lost 20% in September.
• Stock markets may be entering bear market rally.

Advanced Micro Devices (AMD) showed relative strength on Monday. Shares of the chip designer advanced 4.3% to just above $66. The entire market is rising to start the month of October, but AMD is outperforming most of its peers. This may have to do with how bad September was. AMD stock lost 20% in September and was appearing cheap compared to other rivals like Nvidia (NVDA). The latter added 3.1% on Monday. 

Much of the talk on Monday was rather upbeat, despite the kerfuffle with Credit Suisse (CS). The investment bank fielded questions from worried investors over the weekend after the Financial Times reported on worries that the bank might be facing a major restructuring. Analysts at KBW said the $10 billion market cap bank might need to raise as much as $4 billion in equity to stay solvent. On Monday, however, Credit Suisse stock advanced 2.3% higher along with the entire market. 

AMD stock news

AMD lost 20% in September as reports about demand for personal PCs falling hurt the designer of CPUs (central processing units). AMD is the primary competitor in the CPU market for PCs with Intel (INTC) and also competes with it on data center semiconductor products. It does not seem like a coincidence that among US chip majors, Intel and AMD performed best on Monday. Over the past month, as the chart below can attest, Intel and AMD have fared the worst over the past month. Intel stock's 4.7% gain on Monday was probably it playing catch-up from September's steep sell-off. 

AMD performance compared with other semiconductor stocks over the past month

AMD has also faced backlash from Micron Technology's drastically pessimistic guidance released last week. Though Micron is chiefly a designer of memory and storage products (think NAND and DRAM) and thus not a direct competitor, Micron has similar customers to AMD. With Micron cutting current quarter revenue guidance by 25% to 33% due to an unexpected drop-off in demand, management said they would cut next year's capex by as much as half. 

AMD also benefited from a renewed Buy rating from Bank of America Securities. Analyst Vivek Arya, much followed in the semiconductor industry, said that his earlier forecast for cloud growth was too pessimistic. Instead, he now sees 7.5% cloud growth in 2023, which is slower than in recent years but still positive. With the cloud industry growing to $183 billion in spending next year, Arya thinks AMD should likely benefit from its new suite of CPUs and other products.

Specifically, Arya contends that AMD will be able to raise prices on its new Bergamo and Genoa server CPUs by around 15% compared to earlier comparable products. The topline Genoa CPUs feature 96 Zen 4 cores, and the Bergamo chips that come with a slightly different architecture provide a whopping 128 cores. These are industry-leading figures, and many analysts think that this suite of products will help AMD take a substantial share from Intel's Xeon lineup in the data center space over the course of 2023 and 2024. 

The White House has said it will deliver solidified export restrictions to China for advanced chipmakers and semiconductor machine producers this week. Most chip companies did not react badly to the news since the outline had already been announced over the past month. High-end chips used in artificial intelligence will face the restrictions, but it is expected that most of the new restrictions will be imposed on the producers of chip manufacturing equipment like Applied Materials (AMAT) and Lam Research (LRCX). 

AMD stock forecast

On the daily chart below we can see that the Moving Average Convergence Divergence (MACD) indicator has begun to move sideways. This typically takes place before a rally gets going. AMD stock is up another 2.8% in Tuesday's premarket, so it would seem that the market is agreeing with us that a bear market rally might have just begun. Sometimes insignificant details like the changing of a month are all that is needed to move trader sentiment.

With September seeing a drastic sell-off, Monday's reasonless upswing seems like something that could carry on for a term. It may not be as long as the June/July bear market rally this time around, but there is a multitude of names that have been beaten down to more attractive multiples, and AMD is one of them. Before you wave your hands wildly about AMD stock still trading for around 28 times earnings, just remember that the chipmaker is expecting earnings per share growth to top 30% for each of the next three years. Few large companies can accompany that type of growth, so the current valuation does not seem out of line.

In the premarket, AMD stock is trading just below the 9-day moving average near $68. Overtaking $68 on Tuesday or Wednesday would solidify this rally and propel bulls to take out the 21-day moving average at $74.21. $80 is the pivot for a full-on rally back to $100.

AMD daily chart