AMD faces pullback risk as technology sector weakens

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Dmytro Kharkov

2 hours ago

AMD faces pullback risk as technology sector weakens — AMD faces pullback risk

Leading technology stocks declined sharply in premarket trading, suggesting that the market may be preparing for a broader correction.

The main catalyst behind the Advanced Micro Devices Inc (AMD) weakness is Broadcom's latest earnings report. AVGO highlighted a significant gap between AI semiconductor orders and actual deliveries: total orders stand at approximately $30 billion, while shipments amount to only $10.8 billion.

This discrepancy has raised concerns about potential supply chain bottlenecks.

Against this backdrop, AMD shares fell 5% in premarket trading. A seemingly minor trigger, such as a mixed earnings report from a major competitor, was enough to strengthen the profit-taking narrative among investors.

AMD may be forming a top

From a technical perspective, AMD has remained in overbought territory since mid-April. In addition, a bearish divergence has formed on the daily chart according to the RSI (14) indicator. The rally has also occurred without unusually strong trading volume.Another warning sign is the stock's significant distance from its 200-day simple moving average (SMA), which exceeds 120%. Historically, such extreme deviations have often preceded pullbacks and periods of consolidation.

Given these factors, both short- and medium-term traders may begin locking in profits. The key level to watch is $500. If AMD closes below this support level, the next downside targets could be $485, $470, and $450.

Geopolitical risks and a hawkish Fed

The Middle East remains one of the key risks for risk assets.

Negotiations aimed at ending the conflict between the United States and Iran and restoring unrestricted shipping through the Strait of Hormuz have shown little progress. As a result, elevated oil prices and renewed inflationary pressure remain significant concerns for investors.

Under such conditions, the Federal Reserve is likely to maintain a more restrictive monetary policy stance. Expectations for interest rate cuts have faded, while many market participants are increasingly concerned about the possibility of further rate hikes.

A more hawkish Federal Reserve could become an additional headwind for AMD. Higher interest rates typically pressure technology valuations and may lead cloud providers to slow investment in AI infrastructure and data center expansion, two of AMD's key growth drivers.

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