AMD Stock After Strong Q3 Earnings - Still a Buy or Overvalued?

Advanced Micro Devices, Inc. AMD recently reported a blowout third quarter and raised its outlook, driven by strong demand for its high-performance EPYC and other products. The company also secured two major deals to expand its data center artificial intelligence (AI) business. Banking on these positives, is now the ideal time to invest in AMD stock, or is it presently overvalued? Let’s take a closer look –  

AMD Delivers an Outstanding Q3, Raises Guidance 

AMD’s third-quarter earnings results exceeded Wall Street expectations, with revenues for the chipmaker coming in at $9.25 billion, up 36% year over year, citing ir.amd.com. CFO and executive vice president Jean Hu acknowledged that the ongoing investments in the booming AI field and high-performance computing are fueling strong growth and positioning AMD to create long-lasting value for its shareholders. 

AMD’s data center segment, client division, and the gaming unit did exceedingly well in the last quarter. The data center segment reported revenues of $4.3 billion in the third quarter, up from $3.5 billion a year ago, surpassing analysts’ expectations. Similarly, the client division and gaming units’ revenues of $2.9 billion and $1.3 billion, respectively, for the quarter topped analysts’ estimates. 

Strong demand for AMD Instinct MI350 Series GPUs boosted data center revenues, while the client segment was driven by record sales of Ryzen processors. The gaming division’s revenues improved on strong demand for Radeon gaming GPUs. In fact, AMD remains optimistic about its future sales outlook, anticipating fourth-quarter revenues between $9.3 billion and $9.9 billion, once again exceeding analysts’ forecasts. 

In the third quarter, on a non-GAAP basis, AMD reported a net income of $2 billion, a gross margin of 52% and earnings per share of $1.20, all exceeding analysts’ expectations. These results highlighted the company’s strong execution and effective leadership. 

OpenAI & Oracle Deals to Bolster AMD’s Future Prospects 

AMD’s latest landmark partnerships, particularly with OpenAI and Oracle, are expected to fuel long-term growth in its AI segment. Under the agreement with OpenAI, AMD will supply 6 gigawatts of AMD GPUs for OpenAI’s data centers, beginning with the deployment of 1 gigawatt of AMD Instinct MI450 GPUs in the early second half of 2026. OpenAI, on the other hand, will acquire nearly 160 million shares of AMD common stock, representing about 10% ownership in the company, citing AMD’s press release. 

In a separate deal, Oracle Corporation ORCL has agreed to deploy 50,000 AMD GPUs across its data centers worldwide, beginning in the third quarter of 2026. Oracle Cloud Infrastructure (OCI) will launch the first public AI supercluster using AMD’s “Helios” rack design and Instinct MI450 GPUs, as mentioned in the press release. Nonetheless, these partnerships have reinforced AMD’s position in large-scale AI infrastructure, a market mostly dominated by Jensen Huang-led NVIDIA Corporation NVDA. 

Here’s How to Trade AMD Stock After a Strong Q3 

AMD’s solid third-quarter performance, driven by data center, client and gaming segments, and a combination of ground-breaking deals with OpenAI and Oracle, has solidified the company’s position in the large-scale AI infrastructure market and has set the stage for long-term growth. Thus, stakeholders should stay invested in the AMD stock. 

However, for new investors, now may not be the appropriate time to invest in AMD, as the stock appears to be overvalued and is vulnerable to a broader market downturn, making it a risky proposition. Based on the price-to-earnings (P/E) ratio, AMD trades at 65.15 times forward earnings compared with the Computer - Integrated Systems industry’s forward earnings multiple of 33.44.

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AMD, currently, has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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