Shares of Advanced Micro Devices (AMD 1.85%) jumped 6% through 10:30 a.m. ET on Wednesday morning, after reporting a big earnings beat last night.

Heading into the third quarter, analysts had forecast the semiconductor stock would earn $0.64 per share on sales of $5.4 billion. In fact, AMD earned $0.70 per share on sales of $5.8 billion -- and guided higher as well.  

AMD sales and earnings

Now, not all the news was good. AMD's claimed $0.70 "profit" was actually only a non-GAAP (adjusted) number. When calculated according to generally accepted accounting principles (GAAP), earnings per share were only $0.18. What's more, AMD grew its sales by only a modest 4% year over year, with powerful 42% growth in "client segment" sales -- chips for personal computers, but no growth at all in data center chip sales (an important factoid for investors in artificial intelligence). Gaming and embedded segment sales were also both down year over year.  

That being said, AMD scored a big improvement in gross profit margin. Gross margin on the revenue for the quarter -- 47% -- was fully 5 percentage points higher than what AMD earned in the year-ago quarter, and up 1 percentage point from the second quarter of 2023.

Operating expenses grew, but more slowly than revenue (rising only 3%), with the result that AMD was able to flip from a year-ago operating loss to a big operating profit this time around. The company ended up with a 4% operating profit margin, a 5.2% net profit margin, and $0.18 per share in profit.

Should you buy AMD stock?

And things continue to look up for AMD. Turning to guidance, management forecast that its sales will range from $5.8 billion to $6.4 billion, with a midpoint estimate of $6.1 billion. That's $100 million more revenue than Wall Street is looking for. It also implies that AMD's sales will grow 9% year over year -- or twice the rate of growth seen in Q3 -- with gross profit margin probably inching a bit higher as well.

All that being said, however, I cannot bring myself to recommend buying AMD stock, and for one simple reason: valuation.

Valued on its GAAP earnings, AMD stock seems ridiculously overpriced at 765 times trailing profits. Yes, AMD grew its earnings nicely in Q3, but long term, analysts still only forecast a 30% annual growth rate for profits over the next five years. Even giving AMD credit for its superior free cash flow, for example ($1.3 billion), and valuing the stock on that metric, I can't get the valuation on this stock any lower than 120 times, which is still expensive for a 30% grower.

Long story short, even after a fantastic quarterly report, I'm afraid AMD stock is still a sell for me.