Experienced traders know that stocks often face irrational levels of negativity over mildly disappointing news. This was the case for Advanced Micro Devices (AMD 0.08%) following its fourth-quarter report. After management gave slightly lower revenue guidance than some in the market expected, the stock fell 17% on Feb. 4 -- the day after the announcement -- and continued its slide in the Feb. 5 trading session.
Fortunately, such sell-offs can also draw the interest of bargain hunters. The chip stock has already rebounded a bit from that slump, and once more investors take the time to put AMD's earnings report into perspective, it could more than recover.
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AMD after earnings
Objectively speaking, AMD's Q4 and 2025 numbers were solid. For the year, revenue rose 34% to $34.6 billion. This growth came primarily from its data center and client and gaming segments; its embedded business expanded at a more modest rate.
Additionally, its costs and expenses grew more slowly than revenue, and AMD also received an income tax benefit. The performance of its investments helped boost its net income to $4.3 billion, far above the $1.6 billion earned in 2024.
Despite those improvements, AMD guided for Q1 revenue ranging from $9.5 billion to $10.1 billion. But some analysts had been predicting even stronger results, and that may have prompted the sell-off. Also, valuations appear high, as the P/E ratio is 76 despite the recent selling.
NASDAQ: AMD
Key Data Points
Why AMD could recover quickly
However, the chipmaker's forward P/E ratio of around 32 is fairly close to the average for the S&P 500 (^GSPC +0.43%), and its growth is not on track to slow significantly. Indeed, if it hits the $9.8 billion midpoint of its guidance, that would amount to a 32% increase.
Moreover, analysts are predicting 34% revenue growth in 2026 and 37% in 2027, suggesting that any possible slowdown in Q1 would be an anomaly. Also, in November, AMD management forecast that revenue would grow at a compound annual rate of more than 35% over the next three years, and the company appears to be on track to meet that projection.
Also, industry insiders are optimistic about the prospects for its MI450 AI accelerator. Many expect it to match -- and in some ways, surpass -- the performance of Nvidia's Vera Rubin architecture. Assuming it meets those expectations, investors should not expect a slowdown in AMD's growth anytime soon.
AMD should recover quickly
Given that AMD is not on track for any sustained slowdowns, investors should expect a relatively quick recovery in its stock price.
Indeed, with the P/E ratio at 76, investors may have seen the slightly unimpressive earnings guidance as a reason to sell.
Nonetheless, given the growth that AMD last year told investors to expect for the foreseeable future, investors may look back on the current sell-off as an excellent buying opportunity -- particularly if the MI450 proves as strong as early indications suggest.
