AMD Shares Slide on AI Chip Delay Concerns, But Analysts See Buying Opportunity
Advanced Micro Devices (NASDAQ: AMD) shares closed down sharply on Friday, shedding as much as 5% in afternoon trading. The drop was triggered by a sector report questioning the timeline for the company's crucial next-generation AI processors, though some on Wall Street are urging investors to look past the noise.
According to Wells Fargo analyst Aaron Rakers, the sell-off stems from a note by independent research firm SemiAnalysis. The report suggests AMD has encountered development hurdles with its upcoming MI450 data center GPU, a key product in its bid to challenge Nvidia's (NASDAQ: NVDA) dominance in the artificial intelligence chip market.
However, Rakers contends the market reaction is overblown. In his view, AMD maintains solid "traction" on the MI450 and is on track to ramp production in the second half of this year. Wells Fargo, which holds an Overweight rating and a $345 price target on AMD, sees the dip as a potential entry point for investors. "We would be a buyer on stock weakness," the firm noted, as reported by TheFly.com.
The incident highlights the intense scrutiny and sky-high expectations facing AMD as it carves out its space in the lucrative AI semiconductor arena. While the MI350 series has been well-received, the MI450 is viewed as a critical step to close the performance gap with Nvidia's offerings.
Yet, even if the MI450 timeline is secure, a fundamental valuation question looms. AMD is currently trading at a significant premium, with a price-to-free-cash-flow ratio of 76 and a price-to-earnings multiple north of 120. While long-term growth estimates are robust—around 44% annual earnings growth over five years—the current multiples imply near-perfect execution is already priced in. Any stumble, whether in product cycles or market share gains, could lead to further volatility.
Investor Perspectives:
- Michael Tan, Portfolio Manager at Horizon Capital: "This is classic market myopia. The AI story is a multi-year marathon, not a sprint. A minor schedule risk for one chip, which isn't even confirmed by AMD, shouldn't overshadow the structural demand tailwind. The Wells Fargo take is rational."
- Lisa Chen, Retail Investor: "I'm getting whiplash. One day it's all about AI potential, the next it's delays and crazy high valuations. It feels like the stock is priced for miracles. I'm holding my shares but not adding here—it's just too expensive relative to the actual near-term financials."
- David R. Miller, Independent Tech Analyst: "The drop is warranted. This isn't just about a possible delay; it's a symptom of a larger issue. AMD is perpetually 'catching up' in AI, and the market is valuing it as if it's already caught and surpassed Nvidia. The multiples are divorced from reality, and today is a small correction toward sanity."
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.
AMD Shares Slide on AI Chip Delay Concerns, But Analysts See Buying Opportunity was originally published by The Motley Fool.