AMD Stock Falls Despite Strong Earnings

Advanced Micro Devices (AMD) has been on an absolute tear this year. The stock more than doubled after Q2 earnings, but it's now showing signs of weakness. This may seem surprising to investors, given AMD's success.

The company's data center business is skyrocketing, with a 107% year-over-year increase in revenue. However, this growth rate was influenced by last year's ban on chip sales to China, which hurt both AMD and Nvidia.

A look at the quarter-over-quarter results shows that while AMD's data center revenue rose 16%, Nvidia's revenue rose 21%. This means that Nvidia still leads in AI computing. Despite this, AMD's margins improved significantly, reaching a 17% operating margin, up from a 2% loss last year.

The problem is that all of this success was already priced into the stock. With a PE ratio of nearly 70 times forward earnings and 37 times 2027 earnings, AMD's stock is extremely expensive. When compared to Nvidia, which trades for 32 times trailing earnings, it becomes clear that investors are choosing Nvidia over AMD.