Shares of the semiconductor company Advanced Micro Devices (AMD -2.85%) fell sharply last month as a sectorwide sell-off among semiconductor stocks weighed on AMD and its peers amid fears of AI overspending.
AMD shareholders were also concerned about a report that said AI company DeepSeek is developing its own AI processor.
The tech stock was down by 18% by the end of July, according to data provided by S&P Global Market Intelligence.
Image source: The Motley Fool
More competition and worries about AI spending
Last month was not a great time for shareholders of semiconductor companies. Worries are spreading throughout the tech sector that artificial intelligence companies are spending too much on their AI infrastructure and won't receive a good return on that investment.
If tech companies pull back on their spending, it could directly impact AMD and its peers, as they've benefited immensely from the current AI spending spree. For example, tech companies are poised to spend $750 billion in capital expenditures this year alone, much of it for AI.
AMD's spending is sky-high too, with research and development (R&D) costs soaring to $1.2 billion in the first half of this year, up 142% from the first six months of 2025.
Investors soured on semiconductor stocks last month on the AI features, resulting in 20 of the world's largest semiconductor companies losing a collective $1 trillion of market cap value July.
Making matters worse for AMD last month was a report that the China-based AI developer DeepSeek is designing its own artificial intelligence processor. Any increased competition in the semiconductor space is viewed as a broadly negative development for chip stocks, even if the move wouldn't directly impact AMD's existing business.
NASDAQ: AMD
Key Data Points
AMD's share declined further recently
AMD reported its second-quarter results (which ended June 27) in the first week of August, with earnings per share of $1.66 outpacing Wall Street's consensus estimate of $1.62 per share and revenue of $11.55 billion beating the average analyst estimate of $11.28 billion.
But investors pushed AMD's shares lower after the financial results were released, mostly because shareholders had set their expectations very high for AI companies and the growth they expected.
AMD stock has a trailing price-to-earnings (P/E) ratio of 123, which is quite a premium compared to the tech sector average P/E ratio of 35. When investors are paying more for a stock, they often have higher expectations for a company's quarterly results.
All of which means that investors may want to prepare for additional volatility from AMD stock in the short term as investors recalibrate their expectations for this semiconductor stock.
