Here's Why AMD Investors Should Consider Selling Before Nov. 3

AMD (NASDAQ: AMD) has been a tremendous stock to own in 2026. It has risen about 150% this year, ranking in the top 10 for best-performing S&P 500 (SNPINDEX: ^GSPC) stocks. That's an admirable performance, and it has AMD investors believing that it's truly taking ground from primary competitor Nvidia (NASDAQ: NVDA) in the all-important data center market.

However, I think some of this performance isn't earned, and the stock could be ripe for a pullback. There are several factors that point to this potentially coming, and getting out of the stock before AMD's Nov. 3 earnings report could save investors from some heartache.

Image source: The Motley Fool.

AMD's stock is very expensive

At face value, AMD's stock is not cheap, regardless of which valuation measure you use.

AMD PE Ratio (Forward) data by YCharts. PE = price-to-earnings.

At nearly 140 times trailing earnings, it's very pricey for the results it has delivered. Even at 70 times this year's earnings, it's still expensive. Analysts expect a huge year next year, with it trading at 34 times next year's earnings, but that's still just a very expensive stock, especially when compared to Nvidia.

Nvidia is AMD's nemesis in the data center space, and these two have competed against each other for a long time. Nvidia has nearly always been the winner, but from an investment standpoint, that has shifted in 2026. However, I don't think that has really been earned.

AMD's price tag has increased dramatically throughout the year, as evidenced by the chart above. While AMD trades for 34 times next year's earnings, Nvidia trades for 27 times trailing earnings. That's right, Nvidia is cheaper right now than AMD is projected to be at the end of next year if its stock price stays flat.

That's a huge pricing mismatch for companies in the same industry, and I think all of that could come to a head during AMD's third-quarter results.

AMD needs to continue accelerating its growth to justify its price

During AMD's second-quarter results, it reported accelerating data center revenue, rising 107% year over year to $6.7 billion. However, overall company revenue accelerated at just a 50% pace to $11.5 billion. That's because AMD's non-data center business units didn't have great quarters, and they are a drag on AMD's overall financial picture.

Contrast that with Nvidia, which delivered 117% data center growth to $89 billion and overall growth of 106% to $96.2 billion in Q2, and it's pretty clear that AMD is still behind Nvidia. There's nothing in those figures that points to AMD being worth a massive premium over Nvidia, and as soon as the market realizes it, one of two things will happen.

First, AMD stock could come under heavy selling pressure. As many funds look to take gains from 2026 returns and roll them into new 2027 ideas, AMD could be the first one on the chopping block due to it being a bit pricey. This could ignite a sell-off that returns AMD's valuation to a far more reasonable level. Depending on what is said in its Nov. 3 earnings report, this event could be the kick-start, unless it reports a major increase in data center revenue growth.

Second, Nvidia's stock could rotate back to being the darling of the stock market and see its price rise to a more reasonable valuation level. Regardless, I think it's pretty clear that AMD could have a period of underperformance arriving while Nvidia outperforms.

Taking advantage of AMD's high price tag and Nvidia's low price tag makes a lot of investment sense. Investors should consider rotating out of AMD and into Nvidia, as all indicators point toward that being a major trend during 2027.

Keithen Drury has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.