Earnings season can create a tremendous amount of short-term noise. Companies tend to focus on 90-day sprints, rather than the long run, to keep Wall Street happy. But even with that short-term focus, a company can be working towards long-term goals and get hung up in the short run.
That’s especially true when a company plays to long-term trends but hasn’t seen the cycle turn favorable for those trends yet.
In the tech space, chipmaker Advanced Micro Devices (AMD) took a hit after earnings. Specifically, the company provided weak guidance for the personal computer market in the quarter ahead.
Amid a slow economy, that makes sense. But long-term trends suggest that chipmakers will continue to become more valuable as technologies like AI.
Currently, AMD’s earnings have collapsed, down nearly 98 percent compared to a year ago. However, revenues have grown 16 percent. And any improvement in consumer demand could cause prices to soar higher.
Action to take: AMD is worth buying for the long haul, especially after a drop in price. Under $90 per share, the stock trades at a reasonable value for the chipmaker space.
For traders, shares are likely to recover from their guidance-report drop in the coming weeks. The June 16 $90 calls, last going for about $3.50, offer mid-double-digit returns on a bounce in shares from here.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.