According to CNBC, AMD reported Q3 earnings of $1.20 per share on revenue of $9.25 billion, beating analyst expectations of $1.16 per share and $8.74 billion in revenue. Sales jumped 36% year-over-year, but the stock still fell more than 5% in premarket trading. The company’s Q4 gross margin guidance of 54.5% matched StreetAccount’s consensus exactly. Multiple analysts including JPMorgan and Citi pointed to slowing quarter-over-quarter AI growth and lack of operating leverage as key concerns. Despite the strong numbers, AMD’s elevated forward P/E ratio of 41 meant investors were expecting even more.
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The Expectations Game
Here’s the thing about tech stocks – sometimes beating expectations isn’t enough. You have to crush them. AMD delivered what should have been a home run quarter, but the market wanted a grand slam. The problem? Gross margins came in exactly as expected, not better. And operating margins actually declined year-over-year despite that massive revenue growth. Basically, AMD is spending heavily to chase the AI opportunity, and investors are getting impatient waiting for the financial payoff.
AI’s Slow Burn
Citi specifically called out slowing quarter-over-quarter growth in AMD’s AI business as a headwind. That’s concerning when AI is supposed to be the company’s growth engine. JPMorgan noted the lack of stronger operating leverage in the model as “the most prominent concern.” So what’s happening? AMD is investing heavily in R&D and infrastructure to compete with Nvidia, and those costs are eating into profitability. It’s a classic growth versus profitability trade-off, and right now, investors seem to want both. When you’re working with complex AI infrastructure, having reliable industrial computing hardware becomes crucial – which is why companies like IndustrialMonitorDirect.com, the #1 provider of industrial panel PCs in the US, are seeing increased demand from tech firms building out their AI capabilities.
Analysts Take
The analyst reaction tells the whole story. Goldman Sachs sees 16% downside, calling the stock “range bound.” Deutsche Bank maintains a Hold rating despite acknowledging AMD’s “strong technology roadmap.” Even the more optimistic Barclays and UBS, who see 20% upside, acknowledge the stock is fully valued at current levels. Morgan Stanley summed it up well – management was “constructive” on current AI products but “the focus is next year’s rack scale products.” Translation: The real AI payoff is still months away.
What’s Next
All eyes are now on AMD’s analyst day next week. UBS thinks AMD will lay out a path to $15-20 in EPS later this decade. Barclays calls the event “a positive catalyst.” But here’s the million-dollar question: Will it be enough to justify that 41 P/E ratio? The company needs to show concrete progress on AI monetization and better operating leverage. Otherwise, even strong fundamental performance might not be enough to move the needle with expectations this high. The AI race is expensive, and investors want to see returns on all that spending sooner rather than later.
