Chipmaker AMD (NASDAQ: AMD) has had a tremendous year, rising around 125% so far in 2026. However, I think there’s a major red flag that investors cannot afford to ignore: its valuation, which has risen to sky-high levels. I think its current lofty price tag could dampen the stock’s future performance or even set it up for a decline due to the unreasonable expectations now baked into it.
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AMD’s results and stock price don’t jive
AMD and Nvidia (NASDAQ: NVDA) are direct competitors in the AI build-out. With fairly similar businesses, their valuations can be easily compared to determine which one is overvalued and which is reasonably priced (if either of them is).
AMD is more expensive by every earnings metric, and that is a problem.
AMD trades at a very pricey 124 times trailing earnings, while Nvidia trades for 31. In fact, when 2027 earnings projections are used for AMD, it is still more expensive than Nvidia on a trailing earnings basis. AMD’s 34 times 2027 earnings is very pricey and far more than the 31 times trailing earnings Nvidia is at now, or the 17.5 times next year’s earnings that Nvidia trades at.
If AMD were growing far faster than Nvidia and taking market share, I think a premium of that degree could be deserved, but that’s not what’s going on.
Because AMD is a more diversified company, its other categories are dragging on its overall growth rates, and as a result, its sales and earnings are growing more slowly than Nvidia’s.
Regardless of whether you’re looking at profits or revenue, Nvidia is dominating AMD.
If you zoom in a bit and look at AMD’s latest results from its data center division, revenue grew at 107% in Q2. Nvidia hasn’t reported results for its recently ended quarter yet (it is set to report on its fiscal 2027 Q2 at the end of August), but it saw 92% data center growth in fiscal Q1. However, I wouldn’t be surprised if Nvidia’s data center growth rate exceeds AMD’s in Q2.
So, we have two similar companies from a business standpoint, yet one stock is reasonably priced as-is, while the other would need a year and a half’s worth of growth to reach a more reasonable valuation if the stock stayed flat over that time. Something has to give, and I think eventually AMD investors will rotate back into Nvidia, sending AMD shares sinking and Nvidia’s soaring.
That doesn’t bode well for AMD, but even if it doesn’t happen, the stock could still suffer a year of underperformance due to so much expected future success already being baked into its price.
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Keithen Drury has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.
1 Major Red Flag AMD Investors Can’t Afford to Ignore was originally published by The Motley Fool
Disclaimer : This story is auto aggregated by a computer programme and has not been created or edited by DOWNTHENEWS. Publisher: finance.yahoo.com
