Intel Corporation's plunge sounds an alarm! As AI concerns heat up, AMD (AMD.US) needs strong guidance to avoid repeating the same mistakes.

Note that AMD (AMD.US) is one of the best-performing chip stocks this year, but as questions about AI spending heat up, the company's earnings report due after the bell on Tuesday needs to show strong results and a positive outlook to sustain that momentum. "To keep it moving higher, it needs more than just a beat it needs a significant beat accompanied by a fairly strong outlook," said Neville Javeri, a portfolio manager at Allspring Global Investments, which holds the stock. "A mediocre earnings report won't work." Although Wall Street expects AMD to report strong results, the timing of the release comes as investors are eager to sell on disappointing news. Due to a weak outlook, Intel Corporation (INTC.US) on Friday posted its worst single-day performance since data began in 1982. Before that, big AI buyers such as Alphabet (GOOGL.US), Meta Platforms (META.US) and Amazon.com, Inc. (AMZN.US) also saw their shares punished as massive spending eroded their cash flow. Like AMD, Intel Corporation has also been a notable outperformer this year, as AI spending has driven demand for its central processing unit (CPU) chips. Before the earnings release, Intel Corporation's gain in 2026 had reached 150%. But by Monday's close, that gain had shrunk to 63%. AMD shares fell in sympathy with Intel Corporation, dropping 10% on Friday and more than 17% in October. But the stock is still up about 118% this year, far outpacing the 46% gain in the Philadelphia Semiconductor Index (SOX). AMD faces pressure ahead of earnings This rally has made AMD's stock look expensive relative to other chipmakers. It trades at 32 times expected profit over the next 12 months, the fourth-highest valuation multiple among SOX components, down from a high of 56 times on June 30. Still, AMD has historically been a high-priced stock, with an average valuation multiple of about 34 times since 2017. Wall Street analysts expect AMD's third-quarter earnings to jump 92% and revenue to grow 41%, and both figures are expected to rise further in 2027. CEO Lisa Su said last month that the company expects chip demand to be "very high" in the coming years, exceeding supply. CPUs play a key role in AI infrastructure because they are essential to the operation of agents, and thanks to the success of Meta's Muse, agents have swept the market. Data shows these chips contributed nearly a quarter of AMD's 2025 revenue. Supply chain data shows Meta is AMD's second-largest customer, accounting for 5.5% of the chipmaker's revenue. The popularity of Muse has prompted some analysts to raise their price targets on AMD, with Rosenblatt Securities analyst Kevin Cassidy naming it his top long idea for earnings season. "Investors need to see evidence that growth is accelerating, and Muse is definitely a credible catalyst," said Allspring's Javeri. That may explain why Wall Street's consensus forecast for AMD's 2027 net income has been raised 23% over the past three months and its revenue forecast by 14%, with even larger upward revisions for 2028. Based on the average analyst price target tracked, the stock is expected to rise 40% over the next 12 months. The biggest risk ahead of AMD's earnings may be deteriorating investor sentiment around the AI trade and investors' sensitivity to any disappointing news. Over the past two weeks, negative reactions to AI capital expenditure in the earnings reports of AI hyperscalers are exacerbating market concerns about a pullback in spending, which would severely affect chipmakers like AMD that depend on such generous spending continuing. Jim Worden, chief investment officer at Wealth Consulting Group, exited his AMD position due to the uncertain backdrop and the stock's high valuation, but he continues to hold other chipmakers such as NVIDIA Corporation (NVDA.US), Broadcom Inc. (AVGO.US) and Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US). "We may be in a period where AMD goes from good growth to hypergrowth, with things like Muse acting as an accelerator, but I'm just not comfortable with the valuation. There are just too many uncertainties." AMD's valuation is at too large a premium relative to NVIDIA Corporation