In true fashion, markets greatly overbid for shares of Advanced Micro Devices (NASDAQ:AMD) ahead of the earnings report. Although the long-term thesis is holding, the near-term headwinds worsened. AMD forecast lower growth rates in the upcoming quarter. It also paid down around $500 million debt. In short, the earnings story did not help the stock last week.
AMD posted revenue and lower debt levels not seen since 2006. The Ryzen 7nm refresh in desktops and servers lifted sales in the quarter. The GPU division also posted strong growth, with revenue up 69% to $1.66 billion. The second and third-generation Ryzen CPUs sold through well during the holiday period.
The promise of Growth Later
AMD cited a Ryzen 4000 mobile APU fresh and console sales later this year as two positive catalysts for revenue growth. But AMD stock fell hard from the $51 level because the perceived growth in the quarter did not materialize. What is worse is that AMD pushed out its growth expectations.
Markets are highly impatient and irrational. What is worse for AMD stockholders is that they must wait for at least half a year before the high stock price catches up with its fundamentals.
AMD stock is too expensive to recommend at current levels. The downdraft in stocks will pull chip stocks lower and AMD with it. Investors should continue holding AMD but should not average down yet.
