AMD Stock Popped After Earnings, Then Gave It All Back. Is It a Buy Now?

On November 3, AMD reported third-quarter earnings, causing its stock to surge after hours by approximately 8%. However, the following day, AMD's stock only increased by around 1%, which was lower than the S&P 500's gain. This shift in investor sentiment led many to question whether AMD is a worthwhile investment at the moment. AMD's stock has risen rapidly this year, outpacing its actual business growth and leading the stock to become overvalued.

AMD's primary revenue source is its data center business, which grew by 97% year-over-year to $8.5 billion in Q3. While this is a significant increase, it represents a slowdown from the 107% growth seen in Q2. AMD's overall revenue totaled $13.4 billion, up 45% year-over-year. Despite this, AMD's other business units are holding it back from achieving higher growth.

Looking ahead, AMD anticipates strong growth, with its data center revenue expected to double year-over-year in 2027. This suggests that AMD's growth in this area will remain robust, which is beneficial for investors. However, the company's current valuation is quite high, with a price-to-earnings ratio of 106 times trailing earnings.

AMD needs to grow its way to a more reasonable valuation, and one way it's attempting this is by improving its profit margins. While AMD's margins have generally been on an upward trend, they are now starting to plateau. With forward earnings used to value the stock, the price-to-earnings ratio drops to 30 times 2027's earnings estimates, indicating that all of 2027's expected growth is already priced into the stock.

Although AMD has a promising future and has delivered solid results, it is significantly more expensive than other AI stocks in its category, such as Nvidia, which trades at 12.6 times next year's earnings estimates. Therefore, investors may be better off avoiding AMD and exploring other AI stocks that offer better value at the moment.