Advanced Micro Devices joined the $1 trillion club in September, but its stock has since fallen 25% from its peak. Third-quarter data center revenue nearly doubled, yet the Motley Fool's analysis argues the stock's valuation leaves little room for error.
AMD's stock has declined by 25% from its peak since the chipmaker crossed $1 trillion in market capitalization in September. The company is now valued at $797 billion as of the market close on Nov. 4. Concerns about the sustainability of the AI infrastructure spending boom sparked the drop, according to the Motley Fool.
Third-quarter data center revenue nearly doubled
AMD generated $13.4 billion in revenue across its three core business segments in the third quarter, a 45% increase from the year-ago period. The data center segment accounted for $8.5 billion of that total and grew by 97%.
The company started shipping MI455X GPUs and Helios racks during the quarter to customers including Anthropic, OpenAI, Microsoft, Meta and Oracle. OpenAI and Meta each plan to deploy 6 gigawatts' worth of computing capacity over the next few years using AMD's chips.
AMD chief executive Lisa Su believes data center sales will more than double in 2027 and account for 80% of total revenue. She plans to substantially increase GPU supply next year to support that forecast.
AMD stock isn't cheap despite the sell-off
Even so, the stock looks expensive. AMD delivered adjusted earnings of $6.65 per share over the last four quarters, which puts its price-to-earnings ratio at 73.5. Nvidia's ratio is 25.3, so AMD is almost three times as expensive.
Using Wall Street's average 2027 earnings estimate of $16.27 per share, provided by Yahoo! Finance, the forward P/E is 30. The Motley Fool's author notes that this would still exceed Nvidia's current multiple even if the stock does not move for 12 months.
The author concludes that AMD is priced for perfection, and that the stock could fall further if data center growth misses Su's forecast.
Source: The Motley Fool
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