English
Back
Download
Need Help?
Log in to access Online Inquiry
Back to the Top
AMD aims for $1T compute market: Will AI drive alpha returns?
Views 6.1M Contents 1231

[Live Summary]Decoding AMD: Valuation, Earnings, and Options Strategy

avatar
ImSteven joined discussion · Nov 4 21:58
$Advanced Micro Devices (AMD.US)$ released its Q3 earnings, revenue reached $9.246 billion, surpassing the market expectation of $8.744 billion. Revenue from the Data Center, Gaming, and Client segments exceeded expectations, while the Embedded segment revenue of $857 million fell short. Non-GAAP EPS was $1.20, beating the expected $1.17.
However, the stock price declined after the earnings release, dropping 4.7% in after-hours trading, with the deepest decline overnight exceeding 6%.
As mentioned in yesterday's live, AMD's post-earnings stock price move should not exceed the range implied by the pre-earnings options market, approximately ±7%.
[Live Summary]Decoding AMD: Valuation, Earnings, and Options Strategy
AMD's valuation logic underwent a subtle change during the second and third quarters of this year. Prior to this, AMD fit the Price-to-Earnings (P/E Ratio) valuation method. However, since the AI concept erupted in 2024, the P/E Ratio valuation has no longer been suitable for AMD. But within 2024, the market temporarily failed to find an appropriate valuation method, leading to a perplexing decline in the stock price. From its peak in March 2024 (also the annual high) of $227, it fell for an entire year, almost closing at the annual low.
Entering 2025, the decline continued, so much so that the low point in April 2025, $76, represented a loss of two-thirds of its value compared to the March 2024 high. This is an abnormal situation for any chip stock. However, this low of $76 still implied a trailing P/E of 23x based on the full-year 2024 EPS of $3.30. This is not only inexplicable but also defies common sense, since no one values a stock using a backward P/E, especially one that is still quite high. The only reason is that the P/E valuation is not suitable for AMD.
Therefore, during Q2 to Q3 of this year, the market adjusted its valuation logic for AMD. Once the market reached a consensus on using a Price-to-Sales (PS) model for AMD, the news of the OpenAI order in early October triggered AMD's primary upward wave – although most of this surge (23%) occurred within a single day.
How to value AMD with P/S Ratio?
Based on the company's revenue for the first three quarters and the official Q4 revenue guidance, the full-year sales revenue is projected to be approximately $34 billion. Applying a 12x PS multiple, the stock's potential high for this year should be around $251, which was precisely the closing price before the earnings release. This seems less like a coincidence but more a testament to the efficiency of the US stock market.
[Live Summary]Decoding AMD: Valuation, Earnings, and Options Strategy
So why did the stock previously reach a high of $267? There are two reasons: first, market sentiment was still relatively exuberant in October. Second, the market was partially pricing in next year's valuation.
Specifically, after the announcement of the OpenAI jumbo deal in early October, investment banks generally raised their revenue forecasts for AMD next year (2026); the current consensus is around $40 billion. If this forecast is credible, then the stock's potential peak next year could be $300 (i.e., $40 billion multiplied by a 12x PS ratio, divided by the corresponding total number of shares). This price implies about 20% upside from the current stock price.
Since the forecast visibility now extends throughout next year, the earnings surprise from this quarter becomes less critical. The post-earnings stock price movement is more of a disturbance than a decisive factor.
Options Strategy
Given that AMD's current Implied Volatility (IV) is at a very high percentile (87), taking the short side has an advantage over the long side.
[Live Summary]Decoding AMD: Valuation, Earnings, and Options Strategy
Based on AMD's historical patterns, the post-earnings IV typically drops by roughly 10 volatility points. Therefore, whether deploying short calls or short puts before earnings, one would likely profit easily from the IV crush, as the stock price movement range is clearly insufficient to offset the gains from the IV decline.
Furthermore, regarding post-earnings strategy deployment, considering the overall selling pressure in the US stock market, one could wait for AMD's stock price to fully pull back and then analyze based on the actual price at that time.
If the pullback is insufficient (e.g., above $200), consider using lower-strike short puts to bet on a rebound. If the pullback is deep enough (e.g., below $180), one might use LEAPS calls to capture long-term gains for next year.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only. Read more
49
4
2
+0
10
Translate
Report
120K Views
Comment
Sign in to post a comment
avatar
ImSteven
2133
Followers
31
Following
3187
Visitors
Follow