The AI Trade Looks Like It’s Falling Apart. AMD’s Earnings Delivered a Reality Check.
Being in the AI trade over the past month has been a battle of grit and determination. It was already a sea of red before U.S. midterm results, but with Democrats winning several key states while campaigning against AI data centers, the sell-off has only gotten worse.
There’s a lot of noise about AI stocks, but when it comes to actual results, the thesis looks as strong as ever. Advanced Micro Devices (AMD +13.26%) recently reported earnings, and it serves as a valuable reality check amid a sudden bearish wave.
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AMD achieved another record quarter
Sales have been marching higher sequentially for most chipmakers, including AMD. Its data center segment’s sales almost doubled year over year, with record sales of graphics processing units (GPUs) and central processing units (CPUs) driving the trend. While GPUs have been in the spotlight throughout the AI boom, CPUs are becoming more valuable as the shift toward agentic AI progresses.
AMD – Advanced Micro Devices
$508.58+$59.54 (+13.26%)
NASDAQ · As of 4:00 PM ET 11/09/26
AMD generated $13.4 billion in third-quarter revenue, outpacing the high end of its guidance in the process. The company also said that demand for its products is still strengthening while hinting at a stronger fourth quarter.
All this growth also came with rising profit margins. AMD reported 95% year-over-year net income growth. If there’s truly an AI bubble, concerns about that scenario didn’t show up anywhere in AMD’s results. Nvidia delivered similar news when it reported earnings for its fiscal second quarter of 2027, and is expected to do the same in its third-quarter report on Nov. 17. Demand isn’t the issue, and profit margins are rising alongside revenue.
Higher chip demand increases the demand for everything else
GPUs are a key part of AI infrastructure, but a lot of components revolve around each chip. Liquid cooling, AI racks, memory chips, optical cables, and other resources must be accumulated to bring all the GPUs online.
Since AMD and Nvidia both reported stellar earnings and sold more chips, the buyers of those chips will have to invest in the other key components of AI data centers. They also gave solid guidance, suggesting that the momentum is not slowing down.
The tech giants also aren’t slowing down on their capital expenditures. As innovations like humanoid robots and self-driving vehicles approach mainstream adoption, every hyperscaler wants to be the winner in these groundbreaking opportunities.
Tech bull Dan Ives anticipates that Microsoft, Alphabet, Amazon, and Meta Platforms will exceed $1 trillion in capital expenditures in 2027. They won’t be the only companies boosting spending, especially as demand for AI chips remains resilient and on an uptrend.
The stock market doesn’t seem to care
AMD’s earnings didn’t do much to reassure AI investors. Many high-conviction names have been in free fall over the past month. Financing issues and midterm results have concerned many investors.
This negative news cycle makes it hard to be bullish when the majority of market participants are rushing to the sidelines. CNN’s Fear and Greed Index projects a “Fear” rating, which highlights prolonged selling pressure.
In the short term, news cycles dominate investors’ minds. However, fundamentals prevail in the long run. The AI trade has taken a big hit if you look only at stock prices, but the same opportunity has stronger fundamentals than it did a few months ago.
AMD’s earnings served as another reminder that everything is fine. Micron shared that its fiscal 2027 will be even better than its fiscal 2026. It goes to show that AMD’s earnings aren’t a diamond-in-the-rough scenario. The AI industry is filled with diamonds that are trading like copper at current levels.
Source: www.fool.com — article syndicated from the publisher’s feed; all rights remain with the original publisher.