Analysts Urge Caution as AMD Stock is ‘Stretched' Ahead of Earnings

Business Insider

a day ago

With Advanced Micro Devices (AMD) set to report highly anticipated Q2 earnings next week on August 5th, it's no surprise the stock is top of mind for many investors. That said, my analysis suggests AMD is currently priced at a premium from a sentiment standpoint. At these levels, it may be prudent to trim positions, as future returns are more likely to be driven by momentum or sentiment rather than solid, fundamentals-based growth. While the company's operations remain strong, this is a moment that calls for discipline. I'm Neutral on the stock.
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Technicals Show This Is a Moment to Trim AMD Positions
AMD currently has a 14-week RSI (Relative Strength Index) value of nearly 75, meaning that the stock is likely to experience a significant pullback in the near term. The stock price has doubled since April, so it's essential not to be too greedy here. I don't expect the pullback that is imminent to be severe, but it will certainly be a noticeable drawdown that opens up a better buying opportunity.
Management will have to report a strong earnings beat and guidance raise at the earnings report next week, because the current valuation will likely not hold up under in-line results. More than anything, this is definitely a weak moment to initiate a position in AMD, as the valuation is certainly overextended and value players are taking profits right now. At the same time, momentum chasers keep the stock price elevated (for now).
AMD currently has a forward P/E ratio of 45, which is 11.87% higher than its five-year average, even though its forward diluted EPS growth is 21% lower than its five-year average. This shows clearly how AMD is overvalued right now.
However, forward diluted EPS growth is 172% higher than the sector, while the forward P/E is only 84% higher. Therefore, it's possible the market is accumulating AMD shares more aggressively as an alternative to moderate growth elsewhere, and the stock looks reasonable in the short term based on this perspective, until AMD's growth moderates soon. According to TipRanks' chart data, AMD stock is trading at a 14-day RSI of 82.50; I wouldn't consider buying now.
Why H2 2025 Could Offer Much Better Investment Opportunities
It's logical to expect an equity market correction in H2 2025 as GDP growth is projected to slow to 1.4% for 2025, down from ~3% in early 2025. Interest rates are still relatively high at 4.33%, which is higher than the long-term neutral band of 2.5-3% and does restrict growth somewhat. Higher interest rates also raise the discount rate for equities, which compresses valuations. Even so, tech is booming.
For AMD, the PC and Gaming segments are highly exposed to consumer spending downturns, even if Big Tech's capex budgets defy regular market cycles. AMD's strong Data Center segment growth will inevitably be offset by its Consumer segment. Even BigTech capex budgets could be temporarily constrained.
But let's be clear, I'm not suggesting we're entering a recession. This will be a moderate correction at most, and a very healthy opportunity to buy shares in tech stocks like AMD once the price shows some normality again.
By 2026, we're looking at more substantial interest rate cuts, with GDP growth likely moderately accelerating. I think by mid-2026, most industries' equities will be healthy in an expansion phase. AMD's Consumer segments will also likely rebound as PC and personal technology demand spikes amid cheaper financing options and more liquid cash in the market.
So, I'm Neutral on AMD stock for now, but will likely turn Bullish in H2 2025 when the valuation is likely to correct and a buying opportunity opens before more stable 2026 growth.
Is AMD a Buy, Hold, or Sell?
On Wall Street, AMD carries a consensus Moderate Buy rating, based on 24 Buys, 10 Holds, and one Sell, obtained over the past three months. AMD's average stock price target of $156.47 indicates a ~13% downside over the next 12 months.
I'm more optimistic, I see the stock price potentially rising to $200 in about 9 months, but not before a pullback. That's why I think it's wise for bullish investors to take some profit from the table now, because, to be honest, the valuation is excessive and will most likely correct in the near term. However, the overarching bullish thesis remains standing.
AMD Stock is Too Expensive Right Now
AMD stock appears clearly overextended at current levels, making this an ideal time to apply some classic market psychology: be greedy when others are fearful—and cautious when others are overly enthusiastic. The best time to buy is when prices are down; the best time to sell is when they're high. And right now, AMD's price is undeniably high. Investors would be wise to at least lock in some profits, if not exit their position entirely—for now. The long-term growth story is still very much intact, but the market seems to be pricing in too much, too soon. That's why I'm taking a Neutral stance on AMD at this point.