AMD: The Chip Darling & My Anxieties

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So, Advanced Micro Devices (AMD +5.72%) had a bit of a moment today. A 6% pop, apparently. All thanks to its chip-making pal, Taiwan Semiconductor Manufacturing Company (TSM +6.92%), posting some frankly ridiculous Q4 numbers. $2.98 a share? $32.7 billion in sales? It’s enough to make a person feel… inadequate. And slightly suspicious. I mean, seriously. What are they doing over there?

AMD is forecasting “strong demand” for its fancy process tech in Q1 2026. Which, translated from corporate-speak, probably means “we’re hoping everyone keeps panicking about AI and buying all the chips.” Honestly, it’s a brilliant strategy. Play on the fear. I respect it. I also feel a little dirty acknowledging it.

WFC’s Latest Infatuation

And then, of course, Wells Fargo had to weigh in. Aaron Rakers, bless his optimistic little heart, upgraded AMD to his “top pick.” Apparently, there’s “significant upside potential.” 55% this year, he says. It’s the kind of prediction that makes you want to simultaneously buy all the stock and sell everything you own. Just to hedge your bets against the inevitable disappointment.

He’s forecasting $20 a share by 2029. From $1.90. Ten times the earnings. It’s… ambitious. He calls the demand for AI chips “insatiable.” I call it a bubble waiting to burst. But who am I to judge? I’m just a woman with a healthy dose of cynicism and a rapidly dwindling 401k.

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Is AMD a Buy? (Or a Beautiful Trap?)

Right. Let’s talk valuation. Because that’s where things get really interesting. AMD is trading at over 117 times trailing earnings. One hundred and seventeen. It’s practically begging for a correction. A 44% long-term growth rate doesn’t exactly justify that, does it? That gives us a PEG ratio of, ugh, 2.6. It’s… a lot. A lot of hope baked into that price. And hope, my friends, is a dangerous thing.

Okay, there’s a silver lining. They’ve got $5.4 billion in free cash flow. Which is… good. For every dollar of earnings, they’re generating $1.64 in actual cash. Which, admittedly, is impressive. That brings the valuation down to 67 times FCF. Still expensive, but slightly less offensively so. A price-to-free cash flow ratio of 1.5x. It’s… manageable. Like a slightly irritating but ultimately harmless rash.

So, is it a buy? Probably. If you’re the kind of person who enjoys living on the edge and has a high tolerance for risk. I’m more of a “wait for it to drop a bit” kind of girl. Let someone else be the bag holder for a while. I’ll be over here, quietly nursing my skepticism and hoping for a sensible correction. Because, let’s be honest, this whole thing feels a little… precarious. And I really, really don’t like precarious.

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2026-01-15 19:33