3 Reasons to Treat AMD's Drop as an Entry Opportunity

Key Points

• AMD shares dropped following earnings despite beating analyst expectations. 
• Analysts remain bullish, with price targets suggesting more than 40% upside.
• The stock's technical setup is flashing a strong entry opportunity.

Investors would be forgiven for thinking Advanced Micro Devices Inc NASDAQ: AMD has been trading well in recent months, as investors continue to bet on the AI revolution and any tech company with exposure to data center growth. However, a sharp 6% drop following AMD's latest earnings report added to the stock's multi-month downtrend.

Though AMD smashed analyst expectations on the headline numbers, its shares dropped as much as 10%. Still, the broader market remains just below all-time highs, and risk-on sentiment is favoring stocks like AMD that could be on the verge of playing catch-up. 

For those of us on the sidelines, this pullback could be the golden buying opportunity we've been looking for. Let's jump in and take a closer look. 

1. Q4 Earnings Beat Expectations, But AMD Shares Fell 6%

For starters, let's take a look at AMD's fundamental performance. It was a mixed bag throughout 2024, with no consistent run of topping analyst expectations. This likely had a large influence on the stock's lackluster performance.

Therefore, this week's Q4 report would have been frustrating for investors. AMD topped analyst expectations on both EPS and revenue, yet shares finished down 6% on Wednesday. This was despite the company posting a record Q4 revenue print and management's forward guidance coming in hot. 

It looks like a slowdown in data center growth spooked investors who are yet to be convinced that AMD can live up to its potential. Still, revenue was up nearly 25% year-over-year, which is not bad for a stock that's down nearly 40% in that timeframe. For investors who love an underdog, there's a lot to like about AMD's fundamental performance when compared against its share price.

2. Mizuho, Wedbush, Susquehanna, and Stifel Reiterate Bullish Ratings

Building on this theme, multiple bullish updates from analysts suggest Wall Street remains firmly behind AMD's growth story. In the aftermath of Tuesday's report, Mizuho, Wedbush, Susquehanna, and Stifel Nicolaus all reiterated their Buy or equivalent ratings. Of all the analyst updates that MarketBeat tracks, not a single firm downgraded the stock despite the selloff.

The common trend among the updates was AMD's strong positioning in AI and gaming chips as key drivers for the company moving forward. The refreshed analyst price targets ranged up to $162, meaning from where the stock closed on Wednesday night, pointing to a targeted upside of some 40%. Again, any bargain-loving investors should be sitting up and paying attention if they aren't already.

AMD Needs to Prove It Can Maintain Momentum

Of course, it must be acknowledged that data center growth is considered critical for companies like AMD right now, and any slowdown is worrying. Investors should look for the stock to prove this isn't the start of a downtrend in the coming quarters. 

It's also hard to ignore the fact that shares have struggled over the past 12 months, even as some of AMD's tech peers and competitors have climbed to fresh highs. And while analysts remain bullish, many of them have adjusted their price targets lower following Tuesday's report. However, with some of the revised targets still pointing to a 40% upside, there's not much to complain about.

3. A Favorable Risk-to-Reward Setup for Long-Term Investors

So, what does that say about where the stock is trading today? Factoring in yesterday's dip, AMD's relative strength index (RSI) currently sits at 38, indicating shares are already in oversold territory and could soon become extremely oversold if they dip below 30. 

In addition, shares are approaching a key area of support, which could create a strong foundation for a comeback rally. For those of us who are happy to lean into record revenue prints, analysts' bullish outlook, and technical setup, this has the makings of a fantastic entry opportunity.