Trimming AMD Stock Ahead of Q2 Earnings: A Downgrade

AMD's stock has risen 30% since my last analysis. Earnings are scheduled for August 5th, but the company's growth trajectory is slowing, and the stock is overvalued. A downgrade is warranted due to AMD's higher price and slowing growth.

Advanced Micro Devices (AMD) stock has experienced a significant 30% rise since the last analysis, with earnings scheduled for August 5th. However, the company's growth trajectory is showing signs of deceleration, and the stock is currently trading at a premium. This article evaluates whether a downgrade is warranted based on recent developments and market conditions.

AMD's stock has been buoyed by optimism surrounding its artificial intelligence (AI) and data center markets. The company's second-quarter (Q2) earnings are anticipated to show robust growth, with analysts expecting revenue to reach $7.41 billion, representing a 27% year-over-year (YoY) increase [2]. This growth is primarily driven by the data center segment, which is projected to reach $3.31 billion, a 16.8% YoY increase, and the gaming segment, with revenues expected to reach $750.40 million, a 15.8% YoY increase [2].

However, the stock's valuation has become a concern. AMD is trading at over 43 times its forward earnings, which is higher than industry leader Nvidia (NASDAQ: NVDA), trading at 40 times forward earnings [1]. This premium price makes it harder to justify compared to Nvidia, which is growing revenue at a much faster pace.

Moreover, the company's earnings history shows that meeting or beating estimates does not necessarily translate into immediate stock price growth. In its past 10 quarters, AMD has met or beaten earnings-per-share (EPS) estimates, yet there has been no consistency in how its stock price performs immediately after [1]. This indicates that investors are considering more than just earnings when deciding how to value the stock.

Additionally, analysts are divided on AMD's near-term upside. While some see strong AI-driven growth ahead, others remain cautious due to high valuations and execution risks [2]. Goldman Sachs, for instance, initiated coverage with a "Neutral" rating and a $140 price target, citing execution risks and competitive challenges [2].

Given these factors, a downgrade of AMD's stock might be warranted. The company's premium valuation and slowing growth trajectory could make it a less attractive investment compared to other tech stocks. Investors should approach AMD with a long-term mindset and avoid trying to time the market based on earnings.

References:
[1] https://www.mitrade.com/au/insights/news/live-news/article-8-995157-20250730
[2] https://www.ainvest.com/news/amd-stock-set-report-q2-earnings-divided-analyst-opinions-2508/