AMD's Setup
Shares of AMD (AMD) were little changed on the day but fell 8% for the week. A firm started coverage with an outperform rating and a $550 price target, saying AMD is close to becoming a complete AI infrastructure provider.
The stock traded at $149 a year ago, so it has run hard and closed much of the valuation gap with Nvidia (NVDA). Data center revenue grew 107% year-over-year last quarter, up from 57% growth the quarter before, and that segment now makes up 58% of total revenue. AMD is competing in GPUs while taking large share in CPUs at the same time. There is a possible path to $15 in earnings per share in 2027, and maybe as high as $20.
The stock is up 119% this year but has rolled over, down nearly 20% from record highs set about a month ago. The June high was $584; the new price target sits at $550.
In CPUs, Intel (INTC) still holds the most share but has slipped to about 67%, while AMD passed 30% of the x86 CPU market for the first time ever, per Mercury Research. CPU pricing and margins are improving fast, which adds to the case. The total addressable market for data centers is expected to keep speeding up over the next three to four years into the later part of 2030, running into the trillions of dollars. That growth is the reason some investors accept a forward valuation that looks expensive against AMD's own history - the argument is that AMD is growing into the multiple.
By comparison, Nvidia's forward price-to-earnings ratio sits below 25 times, which makes it look cheap next to AMD. The open questions for AMD's next earnings call: how much impact its Helios rack systems have against Nvidia, and whether its MI450 chips take any share from Nvidia, which holds about 90% of the high-end data center market. The stock is expensive, but it is hard to fight a momentum trade this strong, which AMD has been over the last six to eight months.
Nvidia reports next Wednesday, and that news will move AMD, Broadcom (AVGO), and the wider group of stocks tied to Nvidia. Expect a big week for AMD as well.
Trade One: Two-Week Call Calendar (Bullish)
This trade gives upside exposure ahead of Nvidia earnings, on the view that a Nvidia rally could pull AMD up with it. Structure: buy the September 11th 495 call (expires in 21 days), sell the August 28th 495 call (expires in 7 days). The strike sits about $25 above where the stock trades. The debit was about 8.90 and moved to about 9.25, already up roughly 30 cents.
The debit paid is the risk. Max profit comes if the stock lands at or near 495. The profitable range runs roughly from 470 on the downside to 520 on the upside. A one-week wide roll on the 470 strike, near where the stock trades, runs above $11. As expiration nears over the next seven days, you can buy back the short 495 call and roll it to another weekly series, collecting credits that cut risk and lift potential profit. Implied volatility will be high into next week. What hurts the trade: the stock falling from here, or moving above about 520 to 525.
Trade Two: Unbalanced Call Butterfly (Bearish Lean)
This is a more passive trade that can be wrong on direction and still profit. It uses September 18th monthly options. The 50-day simple moving average now sits near $510 and may act as resistance, as it has over the past week.
Structure: buy one 490 call, sell two 500 calls, buy one 540 call, taken in for a credit of about $5 (around 560 currently). If the stock stays below 490, you keep the full credit, worth $500 per spread. The peak profit sits at the 500 strike, so the trade makes money even if the stock rises toward 500. Break even is around $515, above the 50-day average, and about 9.5% above the current share price. Max loss is about $2,500 per spread if the stock pushes above 540.
The trade is a call butterfly that leans bearish yet still pays on a moderate move up - you just don't want a big jump. It combines a long $10 call vertical with a short $40 call vertical. Collect $5, and if the $10 vertical pays its full $10 you make 15, but a move through the 540 strike can still cost 25. It works best when you put it on for a credit and take it off for a credit. It profits in three of four scenarios: keep the credit if the stock falls, hit max profit near 500 if it rises, and the main goal is for the stock to stay below 515 over the next 28 days.
Both trades make money at $495.
