This article reviews Advanced Micro Devices (AMD) stock, explaining the rationale behind a downgrade from 'Strong Buy' to 'Buy' and a partial sale of shares. Despite strong Q3 2025 earnings that surpassed analyst expectations for both EPS and revenue, the stock's recent surge has led to an elevated valuation. This analysis highlights concerns regarding AMD's forward guidance and its high enterprise value-to-EBITDA (EV/EBITDA) and price-to-free cash flow (P/FCF) ratios. The author has reallocated a portion of their investment to Qualcomm, which appears more attractively priced, and outlines specific support levels for potential re-entry into AMD.
Previously, I issued a 'Strong Buy' rating for Advanced Micro Devices on August 7th, 2025, in my piece titled "AMD: Record-Breaking Q2, But Don't Buy Until $156." At that time, the stock was showing initial signs of losing momentum. Following this, AMD's stock experienced a substantial increase, reflecting the market's optimism regarding its future prospects. However, this rally has now pushed the valuation to a point where caution is warranted, leading to a re-evaluation of its investment potential.
The company's third-quarter earnings for 2025 were robust, outperforming consensus estimates. Both earnings per share and revenue figures indicated strong operational performance. Despite these positive results, the forward guidance provided by AMD suggests a more moderate growth trajectory ahead, which, combined with the current high valuation multiples, raises questions about the sustainability of its premium pricing.
Given the current market conditions and AMD's valuation, I have decided to reduce my exposure to the stock by selling 40% of my holdings. The capital freed up from this sale has been reinvested into Qualcomm, a company that, based on various valuation metrics, appears significantly undervalued in comparison. This strategic shift aims to optimize portfolio returns by moving from an overvalued asset to one with more compelling growth and value prospects.
Investors should closely monitor key support levels for AMD, specifically at $194.20 and $160. These levels are critical technical indicators that could signal potential entry points for those looking to acquire shares at a more favorable valuation. A pullback to these zones would align the stock's price with a more attractive risk-reward profile, making it a more prudent investment consideration.
In summary, while AMD has demonstrated strong financial performance, its current market valuation has become a concern. The decision to downgrade the stock and reduce holdings reflects a disciplined approach to managing investment risk and seeking out more attractive opportunities in the semiconductor sector. Future investment in AMD will depend on a significant price correction to more sustainable levels.