AMD And Nvidia Are Among The Most Overbought Stocks On Wall Street Amid The A.I Craze

During this week on Wall Street, chipmakers have emerged as some of the most overbought stocks, driven by investor enthusiasm in the wake of Nvidia's impressive quarterly results. Notably, Nvidia and Advanced Micro Devices were among the sought-after names, with Nvidia's market value skyrocketing to nearly $1 billion and adding approximately $200 billion in just under two days of trading following its earnings report on Wednesday evening.

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This surge in chip stocks reflects traders' pursuit of potential beneficiaries in what they perceive as an A.I. "gold rush." However, it is important to consider the possibility of these stocks being overbought, as indicated by the "relative strength index" (RSI), which measures the speed and magnitude of recent price movements to identify potentially overbought or oversold stocks.

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An RSI above 70 for a 14-day period suggests overbought conditions, implying that investors may have become overly bullish on a particular stock. Conversely, an RSI below 30 indicates oversold conditions, which could present a buying opportunity.

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Based on this metric, CNBC Pro conducted a screening to identify the most overbought and oversold stocks for the week. Among the overbought stocks, chipmakers dominated the list, with Advanced Micro Devices and Broadcom witnessing substantial surges of 20% and 19%, respectively.

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Leading the overbought list was Advanced Micro Devices, boasting a 14-day RSI of 89.72, as per FactSet data. Bank of America increased its price target for the company, recognizing its potential for capturing a larger share of the AI market. However, it maintained a neutral rating on the stock.

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Broadcom, with a 14-day RSI of 84.36, also made the overbought list. Bank of America raised its price target for the company, acknowledging it as the "most underappreciated AI beneficiary" following the announcement of its multibillion-dollar deal with Apple.

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Nvidia, with an RSI of 83.62, was another notable inclusion in the overbought stocks. Additional names on this list included Meta Platforms and Alphabet.

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Conversely, several stocks experienced significant selling pressure based on their 14-day RSIs, particularly in defensive sectors such as healthcare and utilities. One example is Humana, which exhibited a 14-day RSI of 8.02. Cantor Fitzgerald, in an April note, initiated coverage of the stock with an overweight rating, emphasizing its "undervalued" status and potential gains from Medicare Advantage (MA) shares.

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Amgen also appeared as an oversold stock this week, with a 14-day RSI of 9.58. In a May note, Oppenheimer described the biotech firm as having a "unique risk/reward" profile.

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