AMD and Microsoft Team Up to Fuel AI Ambitions. Time to Buy?

AMD stock was out of favor after earnings, but investors are piling in on news it's working with Microsoft on its next series of AI chips.

Advanced Micro Devices  (AMD) - Get Free Report on Wednesday fell 9.2% after the semiconductor stalwart reported earnings. A day later, the shares rebounded 6% -- and at one point during the session they'd rallied more than 12%. 

It wasn’t just a rebound following an initial earnings-fueled decline. Instead, a headline hit at midday, saying that AMD and Microsoft  (MSFT) - Get Free Report were partnering to build chips for AI projects.

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I have covered Nvidia  (NVDA) - Get Free Report for a long time — and it’s the current supplier for Microsoft’s AI needs — so I was no stranger to the potential of AI. 

I had covered this space particularly from the perspective of autonomous-driving solutions, but Nvidia Chief Executive Jensen Huang had made clear that AI would touch every industry.

These days the mere mention of artificial intelligence in a headline can sharply move a stock like AMD, which has a $143 billion market cap, and many others. And here software giant Microsoft is reportedly partnering in and helping finance AMD’s development of these chips.

From RealMoney: “This is part of a multi-pronged strategy to help Microsoft procure more of these highest-tech processors, which would result in reduced reliance upon Nvidia.”

Trading Microsoft Stock

Starting with the larger of the two first, Microsoft stock continues to trade quite well. It had a nice pop on earnings and has been consolidating its gains. With Friday’s action, it’s pushing above its recent highs near $309.

From what I can see, this stock still has a clear path to $320 if it can maintain its bullish momentum.

By that I mean that if the stock can stay above $300 and the rising 10-day moving average. If it drops below these measures, investors will have to shift to a more cautious state in the short term. 

But for now, Microsoft continues to grind higher and $320 is within sight.

Trading AMD Stock

As for Advanced Micro Devices, the volatility has been intense the past few days.

AMD had a 9.2% drop on Wednesday, a 6.1% gain on Thursday (after rallying 12.2%) and the shares are up almost 4% on Friday at last check and are at session highs.

That said, the chart has an interesting look.

The stock put in back-to-back daily lows near $81 and has since powered higher. On Thursday, the shares were rejected by the 50% retracement near $92. On Friday, the stock is struggling with the 21-day and 50-day moving averages near $90.

Despite the volatility, the roadmap is pretty clear.

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On the upside, the bulls need to clear the $90 to $92 area — and thus, this week’s high. That opens the door to the 61.8% retracement at $94.31, then the 78.6% retracement near $98. Finally, $100-plus would be in play above that.

On the downside, a move below Friday’s low near $84.75 opens the door back down to this week’s low near $81.

An undercut below $81 could put the 200-day and 200-week moving averages in play near $79. 

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