Here’s My AMD Plan After Wall Street’s ‘Misguided’ Selloff
What exactly are AMD bears hanging their hats on? Oh, and I have allies…
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On Tuesday evening, high-end chip design giant Advanced Micro Devices (AMD) went to the tape with its second-quarter financial results. The results were solid. So was the guidance provided. Still, the stock is down around 7% on Wednesday morning.
Understand as we proceed, that AMD is a long-time Sarge-folio holding and that I’m a huge fan of CEO Lisa Su. We grew up in adjacent neighborhoods in Queens, NY at roughly the same time.
Even with Wednesday morning’s selloff, AMD is still up 123% year to date and still up 526% from the stock’s April 2025 low. So, no, we are not exactly shedding any tears.
For the period ended June 27, AMD posted adjusted EPS of $1.66 (GAP EPS: $1.38) on revenue of $11.54 billion. While the top line, adjusted bottom line and GAAP bottom-line prints all beat Wall Street’s expectations, that sales number was good for year-over-year growth of 50.1%. This was the most aggressive pace of annual sales growth reported by AMD for any single quarter since Q2 2022.
The CEO
Chair and CEO, Dr. Lisa Su commented in the press release, “We delivered an excellent quarter, with record revenue and profitability as Data Center revenue more than doubled year-over-year. We enter the second half with strong momentum as EPYC demand accelerates, Instinct deployments scale and Helios begins to ramp. More broadly, AI is driving a significant expansion in demand for compute across all of our markets, and our leadership portfolio and growing customer visibility position us exceptionally well to capture this expanding opportunity and deliver substantial revenue and earnings growth in the years ahead.”
Operations
As revenue generation ramped 50.1% higher to $11.536 billion, the cost of sales increased 15.3% to $5.033 billion. This took gross profit up to $6.203 billion (+102.8%) as gross margin improved all the way from 40% a year ago to a stunning 54% for the period. Total GAAP operating expenses grew 31.9% to $4.213 billion, leaving a GAAP operating income of $1.99 billion (up from -$134 million). That took GAAP operating income from -2% up to 17%.
After accounting for interest, other income & expenses, and taxes, GAAP net income hit the tape at $2.297 billion (+163.4%). That worked out to $1.38 per fully diluted share, up from $0.54 for the year-ago comparison. After adjustments, primarily for stock-based compensation and the amortization of acquisition-related intangibles, operating margin widened to 25% from 12%, and net income increased 253% to $2.76 billion. That works out to adjusted diluted EPS of $1.66, up from $0.48.
Segment Performance
– Data Center generated revenue of $6.718 billion (+107.4%), producing operating income of $2.103 billion (up from -$155 million).
– Client & Gaming generated revenue of $3.841 billion (+6.1%), producing operating income of $582 million (-24.1%).
– Embedded generated revenue of $977 million (+18.6%), producing operating income of $386 million (+40.4%).
Guidance
For the current quarter, AMD is projecting total revenue of $12.7 billion to $13.3 billion. This takes the lower end of the range well above the $12.5 billion that Wall Street was looking for. Gross margin is seen at 56%.
Additionally, during the call, Lisa Su mentioned that AMD expects data center driven revenue to more than double year over year for 2027. I have heard that some on Wall Street were disappointed in this guidance. I am not. I see Wednesday morning’s selloff as “misguided.”
Fundamentals
For the period reported, AMD generated operating cash flow of $2.366 billion (+61.8%). Out of that number came capex spending of $808 million, leaving free cash flow of $1.558 billion (+32%). AMD does not currently return capital to shareholders.
Turning to the balance sheet, AMD ended the period with a cash position of $13.111 billion and inventories of $8.468 billion. That put current assets at $31.522 billion. Current liabilities add up to $12.081 billion, including short-term debt of just $875 million. This leaves current and quick ratios of 2.61 and 1.91, respectively. These ratios are excellent.
Total assets amount to $84.464 billion. That does include goodwill and acquisition-related intangibles that total $41.105 billion. At 48.7% of total assets, I am not thrilled, but this does not impact the health of the overall balance sheet. Total liabilities less equity comes to $17.24B. This includes long-term debt of just $2.351 billion.
This balance sheet is in very good shape. The company could handle its entire debt load out of its cash position more than five times over.
A Lot to Like
Revenues are hot. Profitability is soaring. Cash flows are robust. The balance sheet is as strong as an ox. Guidance is solid. There is not a lot to dislike here.
The only two things I see for the bears is that that stock trades at 69 times forward-looking earnings, versus 24 times for Nvidia (NVDA), and the stock was ripe for some profit-taking.
Does valuation matter? Trick question. It does, but less than ever since the human traders on Wall Street were replaced by momentum-chasing robots.
Readers will see that AMD rocketed out of a Double Bottom pattern of bullish reversal this past February. The shares built a Rising Wedge pattern of bearish reversal while running almost $400 into late June. Both of those setups worked to perfection. Coming out of that Wedge, AMD caught a bid close to a 38.6% Fibonacci retracement of that February-June rally.
The stock had recently flirted with regaining its 21-day exponential moving average (EMA) and 50-day simple moving average (SMA). Wednesday morning’s selloff has blunted that effort. Hence, the cavalry in the form of either swing traders or professional managers is not likely to come, at least not today. I would not be surprised to see another attempt in the coming days. For now, both Relative Strength and the daily MACD are not on the side of the bulls.
I am not discouraged and will likely add to my long position. I have allies. Several five-star analysts up and down Wall Street are increasing price targets for AMD Wednesday morning, while others are reiterating already loft targets. I do not see a single cut as of yet.
Advanced Micro Devices (AMD)
Price Target: $700 (reiteration)
Pivot: Recent 50-day SMA ($515)
Add: Down to already tested Fib level
Panic: Loss of that Fib level
At the time of publication, Guilfoyle was long AMD and NVDA equity.
