Why AMD Stock Is Sinking Today

Key Points

• AMD stock has rallied more than 40% over the last three months, but new research from MIT has contributed to a pause in bullish momentum.

• A study conducted at MIT suggests that the vast majority of businesses aren't scoring profits with their generative AI investments.

• Developments on the inflation front are also pushing AMD stock lower.

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AMD (NASDAQ: AMD) stock is losing ground today amid macroeconomic concerns and valuation pressures for artificial intelligence (AI) companies. The semiconductor specialist's share price was down 2.2% as of 2:20 p.m. ET. At the same point in the day's trading, the S&P 500 and Nasdaq Composite were down 0.6% and 1.1%, respectively. The stock had been down as much as 5% when the market opened, but it regained ground in conjunction with some recovery momentum for the broader market.

Tech stocks are getting hit with selling pressures today following new research from the Massachusetts Institute of Technology (MIT) that suggests generative AI integration has mostly been a losing proposition for businesses. New signs that inflation-related pressures could be on the verge of ramping up are also playing a role in AMD's pullback.

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AMD slips after research suggests generative AI could be a bust for businesses

MIT published a new research report on business applications for generative AI yesterday, and its data has contributed to sell-offs for the tech sector. According to MIT's study, 95% of businesses that have made use of generative AI applications haven't managed to achieve profits on the money they've spent on the technology. AMD stock has managed to rally 42% over the last three months on hopes that its chips for AI data centers will help spur big sales and earnings growth, and some investors are wondering if a valuation bubble for the broader artificial intelligence space could be on the verge of popping.

Inflation trends are also hitting AMD stock

Expectations that the Federal Reserve will serve up substantial interest rate cuts this year have been central to bullish momentum for AMD and many other growth stocks this year, but some recent data and indicators have been calling that thesis into question. The Bureau of Labor Statistics published its July Producer Price Index report last week, and the report arrived with inflation that was much hotter economists had forecast.

Adding to concerns that inflation could be poised to accelerate in the near term, Target and Home Depot published second-quarter reports and gave commentary this week that spotlighted the inflationary impacts that tariffs are having on the consumer side of the economy. Higher inflation could deter the Fed from issuing the rate cuts that investors are hoping for, which could significantly weaken bullish support for AMD stock.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Home Depot, and Target. The Motley Fool has a disclosure policy.