Why AMD Stock Is Sinking Today
Key Points
AMD stock is moving lower today in response to Broadcom's latest quarterly report.
Broadcom's quarterly numbers were strong, and guidance actually looked pretty solid.
The recent rally for AI stocks has set high expectations.
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Advanced Micro Devices (NASDAQ: AMD) stock has regained ground following big losses early in Wednesday's session, but it's still in the red today. The semiconductor company's share price was down 2.3% as of 2:30 p.m. ET, but it had been down as much as 7.9% earlier in trading.
There doesn't appear to be any fresh, business-specific news driving AMD's pullback today. Instead, the sell-off is being propelled by the market's analysis of Broadcom's recent quarterly report.
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The market's reaction to Broadcom's earnings is weighing on AI stocks
After the market closed yesterday, Broadcom published results for the second quarter of its current fiscal year -- which ended May 3. The company reported non-GAAP (adjusted) earnings per share of $2.44 on sales of $22.19 billion. Adjusted earnings topped the average analyst estimate by $0.04 per share, and sales exceeded the average analyst estimate by $70 million.
Broadcom's revenue increased nearly 48% year over year, but the company's forward guidance wasn't enough to impress the market. For the current quarter, the tech company guided for sales of roughly $29.4 billion -- which actually exceeded the average analyst estimate's call for sales of approximately $28.47 billion. Despite beating the average target, expectations were sky high heading into the report -- and AMD and other AI stocks are seeing valuation pullbacks as the market reassesses valuations in the space.
What's next for AMD?
Despite today's modest pullback, AMD stock is up approximately 352% over the last year. With a market capitalization of roughly $864 billion, AMD is valued at approximately 72 times this year's expected earnings and 17.5 times this year's expected sales. While the company is positioned to benefit from AI-related tailwinds, its stock is also priced for very strong business execution. So while shares still offer upside potential, there's a risk the future results will underwhelm the market or the overall AI trade will lose steam.
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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 and Broadcom. The Motley Fool has a disclosure policy.
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