Should You Buy AMD Stock Now or Wait for a Dip?

Buying shares of a top artificial intelligence (AI) chipmaker can be a potentially great move to make for the long term. Investments in AI are growing, and tech giants are likely going to continue to need tons of chips as they develop next-gen products and services.

One stock that surged last year amid its growth potential was Advanced Micro Devices (NASDAQ: AMD). It rose by more than 77%. This year, however, it has been declining by 7%, as there's been some bearishness around AI of late. Could this be a good time to buy AMD's stock on the dip, or should you hold off and wait for an even bigger decline?

Image source: Getty Images.

AMD's results have been strong, but not overly impressive

AMD reported earnings last month, which proved to be underwhelming despite the seemingly strong growth numbers. The company's sales for the fourth quarter, which ended in December, beat expectations easily, with revenue of $10.3 billion coming in better than expected ($9.7 billion). However, the company's results got an unexpected boost from shipments to China, which was a surprise to analysts. Meanwhile, the company's guidance for the current quarter also implies a growth rate of around 32%, which is a slowdown from the 34% growth it achieved in Q4.

While these results are strong, they weren't enough to send the stock soaring. That's because for AMD's stock to continue to be a hot buy, its growth rate needs to be fairly high, given how expensive it has become. Currently, it trades at more than 75 times its trailing earnings. Based on analyst estimates, it trades at a lighter forward earnings multiple of 29, but that's still far higher than the S&P 500 average of 21.

Why I'd wait to buy AMD stock

After a terrific year in 2025, I think that AMD's stock may have gotten a bit too hot of late. Expectations are high for the business, and the risk is that it may not be able to meet them. If this past quarter is any indication, with the stock falling despite soundly beating analyst expectations, it may not be easy to convince the market that it's a deal unless AMD generates blowout numbers.

At a time when many AI stocks have been falling due to broad market uncertainty, AMD still doesn't look cheap. Its inflated valuation leaves investors with minimal margin of safety. I would put the stock on a watch list, but there isn't a reason to rush to buy it today, as given its valuation and the weakness in the tech sector, it may still go a lot lower than where it is right now.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices. The Motley Fool has a disclosure policy.