1 Red Flag That Keeps Me From Buying AMD Stock - Yahoo Finance
π AMD stock is criticized for being overvalued, trading at 130 times trailing earnings and 67 times forward earnings.
π» AMD has improved its AI technology to serve as a competitive alternative to Nvidia's computing units.
π The article asserts that all of AMD's expected growth for 2027 is already priced into the current stock price.
β οΈ Investors face a risk of sizable sell-offs or underperformance if AMD fails to exceed its high valuation expectations.
π AMD trades at a significantly higher multiple than competitor Nvidia, which trades at 27 times trailing earnings.
π The Motley Fool Stock Advisor recently excluded Advanced Micro Devices from its list of top 10 stocks to buy now.
Bullish Signals
- AMD has successfully improved its technology to become a viable and competitive alternative to Nvidia in the AI computing sector.
- Analysts expect AMD to have a very strong year in 2027, indicating robust future business performance.
Risk Factors
- The stock is trading at 130 times trailing earnings and 67 times forward earnings, which the author deems excessively expensive.
- A significant portion of AMD's expected growth for 2027 is already priced into the current share price.
- If AMD meets analyst expectations, the stock may trade at a reasonable multiple only after experiencing a sell-off or flat performance.
Full Analysis
The article argues that Advanced Micro Devices (AMD) stock is currently overvalued and advises investors against purchasing shares at present levels. While acknowledging that AMD has improved its technology to become a viable alternative to Nvidia in the AI computing sector, the author contends that significant growth has already been priced into the current share price.
The core argument against buying AMD centers on valuation metrics, specifically the Price-to-Earnings (P/E) ratio. The stock trades at approximately 130 times trailing earnings and 67 times forward earnings, which the author describes as excessively high compared to historical norms of 25-35x and significantly higher than competitor Nvidia's trailing P/E of 27x.
The analysis suggests that AMD's expected growth for 2027 is already fully reflected in today's stock price. Consequently, if the company meets analyst expectations, the stock could trade at a reasonable multiple only after a period of flat performance or a sell-off. The author concludes that buying now risks underperformance as the stock grows into its inflated valuation.
The piece also notes that AMD was excluded from The Motley Fool Stock Advisor's list of top 10 stocks to buy, citing historical examples where Nvidia and Netflix were recommended years ago with massive subsequent returns. This exclusion reinforces the author's stance that AMD is not a compelling buy at current prices despite its strong future outlook.