AI Chip Stocks Sold Off This Week. Is AMD a Buying Opportunity or a Falling Knife?

Semiconductor stocks took a hit this week. The selling began with Broadcom, whose latest quarterly report lacked the wow factor investors had hoped for. That was enough to pull much of the group lower, from Nvidia on down, after a stretch in which chip stocks had run to record highs.

Advanced Micro Devices (NASDAQ: AMD) got swept up in the downdraft, slipping from the all-time high it set in early June. There was no company-specific news behind the move; the stock simply traded down with its peers. So, for investors eyeing the pullback, the question is whether this is a chance to buy one of the better-positioned artificial intelligence (AI) names or a falling knife best left alone.

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A business hitting its stride

The case for buying starts with how well AMD is executing. In the first quarter of 2026, the chipmaker's revenue rose 38% year over year to $10.3 billion -- an acceleration from 34% growth in the fourth quarter of 2025. Driving it was the data center segment, where revenue jumped 57% to $5.8 billion -- an acceleration from the 39% growth this business posted just a quarter earlier. That segment notably now accounts for more than half of AMD's revenue and has become the company's main engine.

"These results mark a clear inflection in our growth trajectory and a structural shift in our business," said CEO Lisa Su during the company's first-quarter earnings call.

And the momentum may build from here. AMD guided for current-quarter revenue of about $11.2 billion, implying approximately 46% year-over-year growth. And the bigger opportunity sits further out. The company's next-generation Instinct MI450 accelerators and its Helios rack systems are set to begin ramping in the second half of the year. Additionally, Meta Platforms has agreed to deploy up to 6 gigawatts of AMD Instinct GPUs, with the first wave built on custom MI450 silicon -- a commitment that could keep the data center business growing quickly well into 2027.

Why some caution makes sense

But the group's sell-off is a reminder of how much optimism is already priced in. The stocks that fell hardest this week were the ones that had climbed the most -- Micron recently crossed $1 trillion in market value for the first time, and Marvell had surged after a high-profile endorsement from Nvidia's CEO. Also affecting growth stocks, a solid May jobs report added pressure by lowering the odds of interest rate cuts.

When expectations run that high, even a single underwhelming outlook, like Broadcom's, can knock the whole group lower. Of course, the sell-off was exacerbated on Friday when a report broke that Meta is considering raising equity to fund its AI build-out -- a move that could dilute shareholders if completed.

AMD is no exception when it comes to a high valuation. Even measured against its trailing non-GAAP (adjusted) earnings, the stock fetches a price-to-earnings ratio north of 100 as of this writing. A multiple like that leaves little room for disappointment, and AMD has a few places where disappointment could surface. Its personal-computer and gaming business, for instance, may face pressure in the back half of the year as memory and component costs rise. And the MI450 ramp, while promising, could squeeze profit margins as it scales. Finally, the company leans heavily on Taiwan Semiconductor Manufacturing for production, so any shortfall in advanced chip capacity could limit how quickly AMD ships its most in-demand products.

Overall, I think AMD stock is one to avoid here. A high valuation has simply left the bar too high, and I believe the stock's sell-off could get even worse.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Broadcom, Marvell Technology, Meta Platforms, Micron Technology, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.