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AMD reported a 50 % year-over-year increase in revenue and a 245% increase in non-GAAP operating profit, but its stock price fell nearly 10% after the results. This is a valuation story , and I'll share with you the details of the company's quarterly financial results , as well as explain why the stock price is falling despite reporting impressive result, management says data center revenue more than doubled year-over-year, and they entered the second half of the year with strong momentum as demand for EPYC grows, Instinct deployments scale, and Helios gains momentum.
These are all names of their products. EPYC refers to the company's processors used in data centers, and remember that since the proliferation of agent-based AI, processors are becoming as important, or only slightly less important, than GPUs. And this is where AMD has a greater advantage in the CPU segment.
It still lags far behind Nvidia in the GPU segment , but in the CPU segment, it stands alongside Intel and others as a major player in the category. They further add, “The increasing visibility of customer orders presents us with an excellent opportunity to capture this expanding AI market and deliver significant revenue and profit growth for many years to come.” And this became something new in the semiconductor industry.
More and more such client agreements are concluded for many years. Therefore, companies like AMD, Micron, and Nvidia have a better understanding of what customer demand will be in 2 or 3 years. Although historically the semiconductor industry didn't work that way, and these companies didn't have that understanding of demand.
By the end of this year, they expect data center sales to accelerate in the second half of the year. So, here are the numbers themselves. Excellent performance in all areas. Revenue grew by 50% year-on-year to 11.5 billion. Gross margin increased from 40 % to 54% compared to the same quarter last year.
Operating profit jumped from a loss of 134 million to a profit of 1.99 billion. Operating margin improved from -2% to 17%. In every way, this is a great improvement. And yet, if we look at the share price after the close of trading, it fell 8.6% at the time of this video recording, a few hours after the numbers were released.
So what is the reason? How can a company report such impressive results and still have its share price fall? And everything points to an assessment of value. Earlier this quarter, as the company's share price neared $500, I warned investors that the stock was overvalued and that the upside potential from that point forward was limited.
I said this is not the best time to buy before the earnings report because the downside risks far outweigh the upside potential. And that's what I meant . The company reports excellent results, but the share price still falls. This is because the company's valuation was already too high. This assessment already included all the positive indicators that we learned about.
Investors were expecting this and were buying shares even before the company announced these excellent results. So all this momentum that the company is currently experiencing and reporting is already largely factored into the share price. That is why, even after such high figures, the share price falls.
The best indicator of AMD's overvalued value is a comparison with Nvidia. On a forward price/ earnings ratio, AMD shares trade at 37.4, while Nvidia's is at 16.4. Therefore, AMD shares are valued at twice the price of Nvidia , even though Nvidia is showing better results and has a stronger competitive advantage in the data center segment.
And yet AMD shares are trading at twice the valuation of Nvidia. Of course, AMD is a smaller company. It has more room for revenue and profitability growth in the coming years than Nvidia. Customers want to give AMD a better chance because they understand that Nvidia has too much of a market share for GPUs in data centers.
Therefore, AMD will have better prospects. I agree that its revenues and profits will continue to grow through the end of this year, probably all of next year, and most likely throughout 2028 . But my only complaint about the company concerns its cost. Remember, in 2025 I named AMD one of the best stocks to buy.
I recommended AMD shares even before they skyrocketed in price. When they fell to 180 or, more precisely, to 190 dollars . I recommended them and upgraded the stock to a "buy" rating at $190. But when the price started to approach $500, I said it was too expensive, and the stock remains expensive—whether viewed individually or compared to Nvidia, it looks overvalued.
Similarly, I calculated the fair value of AMD stock using a discounted cash flow model, and my estimate of the intrinsic value per share was $380. So the market price was $518 before the market closed, and even after falling to $473, you can see that it remains well above my intrinsic value of the stock of $380.
And that's the only reason AMD shares are falling. This is because the company's valuation was already overvalued before the financial results were announced. And if the company did not surprise with figures that were even better than investors expected, the share price had a very high chance of falling.
That's why in the overview video I emphasized this fact and said that the downside potential is much greater than the upside potential. Valuation matters a lot, and when it becomes overvalued, it takes much more effort to increase the share price after the already significant increase that the company has experienced.
Looking at today's results, you may be disappointed, but it's worth looking at the situation more broadly. AMD shares, even after this drop, have risen by more than 142% since the beginning of the year. This is definitely a great year for them. In my opinion, the price simply ran ahead. Most of the profits the company expects to make this year and next are already factored into this estimate.
So at any price above or close to $500, I wouldn't buy AMD stock. If I were interested in buying AMD stock, I would wait for prices to be $450 or below. Probably even under $400 if you want to be sensible about the valuation-to-market ratio before I start accumulating AMD stock . As I mentioned, I did not view these stocks as a buying opportunity.
I rated them a "hold" after the share price rose so much. And that's why today I confirm this rating. I don't think a drop of about 8% is sufficient reason to upgrade my stock rating. I need to see the stock price around $400 before I upgrade to a buy rating . This does not diminish the company's merits.
They did a great job. They secured excellent positions for themselves. Everything except the rating is good. So it's just a matter of buying the company at the right price, because even the best company in the world can be a bad investment if you pay too high a price.
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