AMD’s Earnings: A Test for Chips, Momentum Stocks, and Market Sanity

The upcoming earnings report from Advanced Micro Devices (AMD) is a critical test for both the company’s financials and the broader market. Historically, AMD’s shares have experienced significant volatility following its earnings announcements, averaging a 16.5% move over the month that follows.

One reason for this skepticism lies in AMD’s technical picture, which has deteriorated rapidly across multiple timeframes and indicators. Momentum and trend metrics are signaling a short bias, with many of these indicators having been profitable in the past. However, it’s not just AMD’s price action that raises concerns; since July 1st, 45 tech hardware and semiconductor companies have reported earnings, and while operations look solid on paper, market reaction has been overwhelmingly negative.

Of these companies, 38 beat top-line expectations, 37 logged earnings growth, and 36 beat on the bottom line. Yet, their stock prices have collectively pulled back by an average of 13.4%, with 36 out of 45 trading lower since July 1st. This disconnect between strong results and negative market reaction highlights a high hurdle rate for IT hardware.

Capital is actively rotating away from tech hardware into defensive and value-oriented sectors such as Healthcare, Financials, and Industrials. Even strong reports are meeting heavy sell-on-news pressure, suggesting that investors are increasingly seeking safer havens amidst growing market volatility. The disconnect between good results receiving a tepid reception and disappointing results being severely punished raises questions about the current state of investor sentiment.

The proposed strategy of selling a September 11 / November $430 Calendar Put Spread offers an asymmetrical risk/reward structure for those looking to capitalize on potential downside drift or post-earnings weakness while managing volatility crush. This involves selling the shorter-dated put to capture the post-earnings “volatility crush,” and buying the longer-dated put to maintain directional exposure if the downward drift persists.

What this means for investors is that they need to be cautious about their expectations from AMD’s earnings report. While the company has a history of delivering strong results, market sentiment appears to be primed for disappointment. The proposed strategy offers an interesting way for traders to manage risk and potentially profit from a downturn in the stock price.

As we watch AMD’s earnings report unfold, it becomes clear that good results are no longer being rewarded as they once were, while bad results are being punished with increasing severity. This disconnect between market reaction and fundamentals raises important questions about investor sentiment and the current state of the market.