Investors may have overreacted to the slightly negative news in AMD’s latest earnings report.
Experienced traders know that stocks often experience irrational levels of negativity due to mildly disappointing news. This was the case before Advanced micro devices (AMD +3.63%) after the fourth quarter report. After management provided slightly lower revenue guidance than some in the market expected, the stock fell 17% on February 4 – the day after the announcement – and continued its decline during the February 5 trading session.
Fortunately, such sales can also attract the attention of bargain hunters. The chip stock has already recovered somewhat from that slump, and if investors once again take the time to put AMD’s earnings report into perspective, it could more than bounce back.
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AMD after earnings
Objectively, AMD’s fourth quarter and 2025 numbers were solid. For the full year, sales rose 34% to $34.6 billion. This growth came primarily from the data center and customer and gaming segments; the embedded activities expanded at a more modest pace.
In addition, costs and expenses grew more slowly than revenues, and AMD also received an income tax benefit. The performance of its investments allowed net income to rise to $4.3 billion, well above the $1.6 billion earned in 2024.
Despite these improvements, AMD was targeting first-quarter revenue ranging from $9.5 billion to $10.1 billion. But some analysts had forecast even stronger results, and that may have caused the sell-off. Furthermore, valuations appear high as the price/earnings ratio stands at 76 despite recent sales.
Today’s change
(3.63%)$7.56
Current price
$9:00 PM
Key data points
Market capitalization
$352 billion
Day range
$204.15 -$217.60
Range of 52 weeks
$76.48 -$267.08
Volume
33K
Avg. full
40M
Gross margin
45.99%
Why AMD was able to recover quickly
However, the chipmaker’s price-to-earnings ratio of around 32 is fairly close to the average for the chipmaker S&P500 (^GSPC +0.47%)and growth is not on track to slow significantly. If the stock were to reach the midpoint of its $9.8 billion guidance, that would represent a 32% increase.
Furthermore, analysts predict revenue growth of 34% in 2026 and 37% in 2027, suggesting that any potential slowdown in the first quarter would be an anomaly. Also in November, AMD management forecast that revenue would grow at a compound annual rate of more than 35% over the next three years, and the company appears to be on track to meet that forecast.
Also, industry insiders are optimistic about the prospects for the MI450 AI accelerator. Many expect it to match – and in some ways even exceed – the performance of Nvidia‘s Vera Rubin Architecture. Assuming it meets these expectations, investors shouldn’t expect a slowdown in AMD’s growth anytime soon.
AMD should recover quickly
Since AMD is not on track for a sustained slowdown, investors can expect a relatively quick recovery in its stock price.
With a price-to-earnings ratio of 76, investors may have seen the unimpressive earnings estimates as a reason to sell.
Still, given the growth that AMD told investors last year to expect in the near future, investors may look back on the current sell-off as an excellent buying opportunity – especially if the MI450 turns out to be as strong as early indications suggest.
