WHY DID $AMD CRASH AFTER GREAT EARNINGS?!?
In a Nutshell
AMD stock dropped despite beating earnings because its 171x earnings valuation left no room for disappointment, while capex tripled to $888M and Nvidia's Nvidia partnership highlighted AMD's second-tier position. SpaceX fell 7% after strong Q2 results ($7.8B revenue) because it's still burning billions annually with no clear path to profitability. Both stocks illustrate how high valuations and speculative narratives create post-earnings selloffs even when fundamentals beat expectations.
These notes were generated by AI and may contain inaccuracies.
SpaceX and AMD both reported better-than-expected earnings yet their stocks dropped, with SpaceX falling 7.2%. The analysis explores why strong earnings can lead to stock declines.
SpaceX remains highly speculative as a company that continues to lose billions of dollars annually while burning through capital via capex spending. The stock's volatility is unsurprising given its recent trajectory from $230 per share down to $104 within weeks of its IPO. A 7% decline after a 9% same-day run-up is consistent with its speculative nature.
AMD has demonstrated strong performance, rising from $180 per share to $600. However, other semiconductor and memory chip stocks like SanDisk and Marvel Technologies are outperforming AMD and are not experiencing post-earnings selloffs. SanDisk and Marvel Technologies report earnings tomorrow.
AMD reported strong earnings with EPS beating expectations and revenue reaching $11.5 billion, representing one of the company's best quarters. Despite these results, the stock declined because the market considers it overvalued after its substantial run-up. The market will not tolerate any signs of disappointment when a stock trades at such elevated levels.
AMD's capex spending tripled from $389 million to $88 million, exceeding investor expectations. Current market sentiment does not favor significant capex investments, as evidenced by similar concerns with Meta and Google. Investors are questioning whether AMD's increased spending will generate adequate returns.
Following AMD's earnings announcement, SpaceX announced a partnership with Nvidia. Nvidia is positioned as the market leader in the space AMD aspires to compete in. AMD is described as the "second best" at best, with Nvidia being the clear preference for investment.
AMD trades at 171 times its earnings, while Nvidia, the market leader, trades at only 32 times earnings. This valuation gap makes Nvidia appear significantly more attractive as an investment compared to AMD's premium pricing.
AMD's elevated valuation makes it vulnerable to shorting activity and significant price declines during market downturns or periods of disappointment. The analysis suggests AMD has been "squeezed out" of its growth potential and is trading at levels that invite short positions.
SpaceX investment is characterized as betting on "the dream of Elon Musk," who is acknowledged as one of the greatest minds of the generation but tends to overpromise and underdeliver. The Roadster delivery timeline is cited as an example of delayed promises, with Mars tickets and orbital data centers mentioned as future ambitious goals.
SpaceX Q2 revenue reached $7.8 billion against $6.8 billion expected. Capex came in slightly below the $18.58 billion expectation. Starlink achieved 12 million subscribers by end of Q2 with revenue 15% above estimates. Despite these milestones, SpaceX remains highly speculative.
Upcoming liquidity events involving Tesla investors may create additional selling pressure on SpaceX shares. The position in SpaceX is described as small and intended for children, with willingness to increase holdings if the stock drops below $100 per share. Speculative stocks like SpaceX are expected to struggle during market downturns.
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