AMD’s Upcoming Earnings: A Key Test for This High-Valuation Chip Stock

Stock Market

Advanced Micro Devices (NASDAQ:AMD) is a famous semiconductor developer, and its chief executive, Lisa Su, is a Wall Street celebrity. However, the market may be too optimistic about Advanced Micro Devices stock. It’s a tough call, but we’re assigning it a “B” grade for the time being.

The recent price pullback from $200 may tempt you to invest in Advanced Micro Devices shares. It’s understandable, given that Advanced Micro Devices is a revenue-generating powerhouse. Not all stock-price drawdowns are buying opportunities, so be cautious.

Analyst Is ‘Extremely Impressed’ With Advanced Micro Devices

It’s probably fair to say that Piper Sandler analyst Harsh Kumar really likes Advanced Micro Devices. He gave Advanced Micro Devices stock an “overweight” rating and $175 price target, and said he was “extremely impressed” after traveling with the company’s management.

Kumar was certainly effusive with his praise. He declared that Advanced Micro Devices’ MI300 chip is “performing very well,” and sees the company “as having bright prospects moving into the back half the year.”

The analyst’s enthusiasm isn’t unfounded. In this year’s first quarter, Advanced Micro Devices’ Client segment revenue grew 85% year over year.

The company’s Data Center segment revenue, which includes revenue from artificial intelligence compatible chips, grew 80%.

High Expectations for Advanced Micro Devices

As Barron’s reported, Advanced Micro Devices “expects $4 billion in AI processor sales for the full year.” Yet, could it be problematic that Advanced Micro Devices and analysts like Kumar are evidently ultra-optimistic?

We’re not saying that you can’t buy Advanced Micro Devices stock now. Just be prepared for a range of possible outcomes. After all, Advanced Micro Devices has an earnings report coming up fairly soon, probably in less than a month.

High expectations could be a setup for disappointment. As the earnings event approaches, prospective investors should weigh Advanced Micro Devices’ revenue growth against the company’s expectations and valuation.

This shouldn’t be your number-one consideration, but Advanced Micro Devices’ GAAP trailing 12-month price-to-earnings ratio currently exceeds 200x. Hence, Advanced Micro Devices might need to produce outstanding quarterly stats in order to justify its valuation.

Advanced Micro Devices Stock: Wait for This Event

Kumar isn’t wrong when he opines that Advanced Micro Devices has “bright prospects.” The data certainly shows that Advanced Micro Devices is a powerful revenue grower.

Still, it’s not a bad idea to wait for the company’s upcoming quarterly earnings report before considering a position in Advanced Micro Devices stock. Having more data will only help you make a more informed decision.

So, while we don’t have any particular problem with Advanced Micro Devices as a business, we’re currently giving the stock a “B” grade and a cautiously bullish perspective.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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