Earnings Week: Should You Buy Before, After, or Not at All?

Earnings week is here, and the big question remains: Do you buy before, after, or just sit on the sidelines? Are stocks like AMD, Amazon, and Palantir smart plays right now, or could they turn into costly mistakes? Let’s break it all down so you can decide.

Stock #1: AMD (Advanced Micro Devices)

AMD has taken a big hit from its all-time high of $227 in March of last year, now trading at $116—down over 50%. This is a company that makes phenomenal chips, with a market cap of $190 billion and an enterprise value of around $200 billion. That’s an indication of minimal net debt, which is great considering their free cash flow.

But here’s where it gets interesting: their 5-year average free cash flow was $2 billion, and their one-year is $1.56 billion. Is this a downward trend? Unlike Nvidia, which is soaring, AMD has historically been second place to someone else. They have strong fundamentals with a 48% gross margin, but their profit margin is a bit lower than expected—just 7.5% last year compared to a 10% five-year average.

Now, let’s talk valuation. The one-year P/E ratio is 105, and the price-to-free-cash-flow ratio is 122. That’s steep for a $200 billion company. The question is: How do you generate outsized returns when you’re already trading at 100 times earnings? Let’s look at AMD’s eight pillars.

The Good:

• Revenue is up
• Net income is up
• Free cash flow is up (by the same amount as net income)
• Low debt (excellent balance sheet)

The Red Flags:

• Shares outstanding are up 35% over the last five years (major dilution for shareholders)
• A high valuation—100x earnings and free cash flow

The Earnings Report and AI Push

AMD had a record-breaking 2024, hitting $6.8 billion in Q3 revenue, up 18% year-over-year, thanks to data center and processor sales. Their data center revenue jumped 122% to $3.5 billion due to EPYC CPUs and Instinct GPUs. Their AI expansion includes partnerships with Dell, Google Cloud, and Microsoft, plus a $4.9 billion acquisition of ZT Systems.

However, competition is stiff, especially with Nvidia leading the pack. Also, gaming and embedded segments saw slight declines. AMD reports earnings on Tuesday after the close, with expectations of $7.54 billion in revenue and $1.19 EPS.

Stock Analyzer Tool Insights

The last time AMD was analyzed (December 17), assumptions included 8%, 12%, and 16% revenue growth and 8%, 15%, and 22% profit margins. Even with optimistic projections, the stock's fair value ranged from $30 to $190, with a middle price of $85. At today’s $117 price, that means a 5% return, making patience key with AMD.

Stock #2: Palantir (PLTR)

Palantir has been a YouTube favorite, skyrocketing from $5.83 to $78 per share—a 15x increase. In just five years, its free cash flow has surged from $380 million to $980 million. However, here’s where things get scary: Palantir has the same market cap as AMD, yet only generated $2.65 billion in revenue last year.

The Good:

• 81% gross margin
• Net cash position ($4 billion excess cash)
• 30% revenue growth in Q3, driven by commercial and government contracts
• S&P 500 inclusion and 340% stock rally in 2024

The Red Flags:

• 200x free cash flow and 400x net income valuation
• CEO Alex Karp sold $2 billion in stock, while other execs cashed out $600 million
• Forward P/E of 175x, which is hard to justify even with strong earnings growth

Stock Analyzer Tool Insights

Using a 10-year analysis, revenue growth assumptions were 12%, 18%, and 24%, with 25%, 32.5%, and 40% margins. Even with aggressive assumptions, fair values range from $9 to $48, with a middle price of $21. The current price of $78 suggests caution.

Palantir reports earnings today, expecting $780 million in revenue and $0.11 EPS. Based on past patterns, expect them to beat by a penny, but keep an eye on free cash flow trends.

Stock #3: Amazon (AMZN)

Amazon, the everything company, has a $2.6 trillion market cap. Their free cash flow surged from $11 billion (5-year avg) to $43 billion last year, but they still trade at 60x free cash flow. AWS is their cash cow, bringing in $27.5 billion last quarter, and they hold over 40% of the U.S. eCommerce market.

The Good:

• 11% revenue growth in Q3 to $159 billion
• 55% net income growth to $15.3 billion
• $75 billion AI investment
• AWS riding AI and cloud demand

The Red Flags:

• 47x P/E ratio
• Project Kuiper and other large-scale projects could strain profits

Amazon reports earnings Thursday, expecting $187 billion in revenue and $1.46 EPS.

Stock Analyzer Tool Insights

Even with 7%, 12%, and 17% margins, fair values ranged from $80 to $370, with a middle price of $190. The stock currently trades at $238, which is optimistic, assuming profits they’ve never achieved before.

Final Takeaway: Do the Numbers Even Matter?

Many argue that these stocks are growth plays where valuation doesn’t matter. But every investment is the present value of future cash flows. That’s why principle-driven investors rely on both the story and the numbers to make decisions.

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