Why AMD Stock Just Crashed

Don't look now, but the AI market just shifted -- and Advanced Micro Devices (NASDAQ: AMD) investors are nervous.

Bloomberg reports Meta (NASDAQ: META) may purchase Tensor Processing Units (TPUs) designed by Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) for use in Meta's artificial intelligence data centers. This is mainly bad news for Nvidia (NASDAQ: NVDA) stock, because Nvidia has been selling a lot of Graphics Processing Units (GPUs) to Meta. It's also probably bad news for AMD, and AMD stock is now down 7.9% through 11:10 a.m. ET.

Who benefits?

There are multiple ways to look at this story. Let's see if we can cover them all briefly.

For Meta, a switch from Nvidia chips to Alphabet chips means lower costs -- at least assuming Alphabet's TPUs are cheaper and offer similar performance to Nvidia's GPUs.

At the same time, Alphabet stock would benefit by convincing one of its fiercest rivals in AI, large language models (LLMs), to give it money -- essentially subsidizing Alphabet's business!

Nvidia is the most obvious loser here -- assuming the rumors are true -- because it would be losing sales to a new rival, Alphabet. But AMD is also a likely loser.

Is AMD stock a sell?

Why? Because up until now, the rumor was that Meta was looking to buy GPUs from AMD -- not Alphabet. AMD's stock price had incorporated the potential that it might gain Meta as a customer. But now that option seems off the table.

So, does this make AMD stock a sell?

Honestly, I kind of think it does. At a $350 billion market cap but with only $3.3 billion in trailing profit, AMD stock costs more than 100 times earnings. That might be OK if AMD's profits could double year over year, consistently.

Now, that doesn't look likely to happen.

Rich Smith has positions in Meta Platforms. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.