Why Advanced Micro Devices Stock Plummeted 15.4% Last Month and Has Inched Lower in March

Advanced Micro Devices (NASDAQ: AMD) stock sank in February amid a widespread pullback for valuations in the technology sector. The company's share price declined 15.4% across the stretch. Meanwhile, the S&P 500's level moved 0.9% lower, and the even more tech-heavy Nasdaq Composite saw its level fall 3.4%.

Artificial intelligence (AI) stocks faced selling pressures last month, and AMD's valuation took a significant hit in conjunction with the trend. On the other hand, the company actually delivered some very encouraging news for shareholders.

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AMD lost ground amid AI valuation concerns and macroeconomic news

AMD kicked off last month with the publication of its fourth-quarter results on Feb. 3 and posted sales and earnings that came in above Wall Street's targets. The business made a non-GAAP (adjusted) profit of $1.53 per share on revenue of $10.27 billion, which was much better than the average analyst estimate for earnings per share of $1.32 on revenue of $9.67 billion.

Despite big sales and earnings beats in Q4, the stock plummeted following the release of the quarterly report due to forward guidance that fell short of some investors' expectations. While the average analyst estimate had called for the company to post sales of $9.38 billion this quarter, AMD actually guided for sales to be between $9.5 billion and $10.1 billion. The midpoint of the company's guidance range came in significantly ahead of the average analyst estimate, but some investors were modeling for the business to post much stronger sales in conjunction with AI-related demand.

On the other hand, AMD shareholders got some very good news on Feb. 24 with the publication of a press release announcing the expansion of the company's partnership with Meta Platforms. AMD will be providing Meta with its MI450 AI graphics processing units (GPUs) for AI data centers -- marking a significant win as the chip designer aims to win market share away from Nvidia in the space. Meta is also purchasing AMD's top-of-the-line central processing units (CPUs) for data centers.

Even with Q4 beats, solid guidance, and a big contract win with a leading hyperscaler customer, AMD wasn't able to escape last month without recording a double-digit valuation slide. AI stocks were under pressure for much of the month, and the January producer price index (PPI) report published by the Bureau of Labor Statistics at the end of the month showed higher-than-anticipated inflation and ended the stretch's trading on a sour note.

What's next for AMD?

Amid news surrounding the U.S. and Israel's war with Iran and macroeconomic developments, stocks have gotten off to a volatile start in March. AMD's share price has declined an additional 0.4% in the month as of this writing.

AMD stock is now valued at roughly 30 times this year's expected earnings. While charting the company's performance outlook in the crucial AI data center market involves a lot of guesswork, the stock could be worth a close look from growth-focused investors at current prices. The company probably won't be beating Nvidia any time soon when it comes to ultra-high-end GPU performance, but the market is growing fast enough to support multiple winners -- and the two competitors are currently the only real players in the category.

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