What happened

Shares of Advanced Micro Devices (AMD -5.22%) took a dive on Wednesday morning, dipping as much as 8.7% by noon ET. The semiconductor designer reported second-quarter business results on Tuesday evening, and the report wasn't impressive enough to support AMD's soaring stock chart.

So what

AMD's second-quarter sales fell 18% year over year to $5.36 billion. Adjusted earnings dipped 3%, landing at $0.58 per diluted share. These results were near the midpoint of management's guidance for the quarter. Your average Wall Street analyst would have settled for earnings of roughly $0.57 per share on revenue near $5.31 billion.

So AMD's results edged past Wall Street's official expectations, but the stock was priced for perfection heading into this business update. Share prices had gained 82% year to date by Tuesday's closing bell. AMD shares were changing hands at hefty valuation ratios like 76 times free cash flow and 511 times earnings. It takes more than an in-line performance to support prices at that lofty level.

Infographic displaying AMD's revenue streams and expense categories in Q2 2023.

Now what

A dramatically weaker PC market and modest demand from enterprise-class customers undermined AMD's sales growth. However, CEO Lisa Su expects the downtrend to shift in the second half as system builders add artificial intelligence (AI) features to their products. AMD is also sampling the Instinct MI300 series of high-performance processing chips to cloud computing and AI specialists, setting the stage for strong AI-based sales in upcoming quarters.

The surging AI market isn't ready to move financial needles quite yet. However, many investors can't wait to place their bets on long-term winners in that game-changing race. That's why you get an 8.7% stock price dive from a perfectly good earnings report like AMD's second-quarter update.

I'd call this a buying opportunity if the stock weren't soaring at nosebleed valuations both before and after the sharp drop. Maybe it's best to let the high-priced market darling cool down while you approach the AI opportunity through lower-priced alternatives instead.