It’s hard to deliver great performances two years in a row

AMD (AMD -2.03%) has had an incredible 2026. After notable surges earlier this year and another spike that kicked off in early September, the stock is up by more than 180% year to date.

However, 2026 is more than three-fourths over, and investors are starting to turn their gazes to 2027. I think history has a lot to say about what AMD investors can expect in 2027. Spoiler: It isn't good.

After almost tripling its market cap so far this year, AMD is now nearly a trillion-dollar company. If it were to triple again, it would be worth about $3 trillion, and rank as the fifth-largest company in the world (assuming the other megacaps' values stay flat). However, I don't think that will happen.

If you look at AMD as a whole, and consider valuation, stock price movement, and business results, there's one item that stands out: valuation. AMD's valuation has flat-out gotten out of control for the growth it's delivering. Its forward price-to-earnings ratio has climbed to over 85. That ranks it among the most expensive stocks in the market, and far more expensive than its chipmaking peers.

Take industry leader Nvidia (NVDA -0.52%), for example: It trades at just 26 times forward earnings. Broadcom (AVGO +0.39%), which makes custom AI chips, trades at 32 times forward earnings.

In each of their most recent quarters, the revenues of those chipmakers have grown faster than AMD's.

NVDA Revenue (Quarterly YOY Growth) data by YCharts. YOY = year over year.

So, why is the market awarding AMD such a major premium? I think it reflects that investors want something different from Nvidia. Nvidia has dominated the AI conversation and the data center accelerator space for a long time, and there was a bit of investment fatigue with the stock. Investors were looking for alternatives and found AMD. This helped spark a major rally through 2026 that left the stock incredibly expensive.

I'm not saying AMD stock will crash in 2027. However, I think there could be some declines toward the end of the year as investors take profits and reposition themselves into stocks like Nvidia and Broadcom, which are delivering better growth in the same chip industry at far cheaper valuations. It will take a long time for AMD's business to grow into its current lofty valuation, which will hurt future returns.

ExpandNASDAQ: AMDAdvanced Micro DevicesPremium FeatureMoneyball Superscore95/100Today's Change(-2.03%) $-12.58Current Price$608.10Key Data PointsMarket Cap$993BMarket cap calculated using publicly traded shares outstanding only. Does not include unlisted, private, or dual-class non-traded shares. Implied market cap may vary.Day's Range$606.00 – $627.3752wk Range$188.22 – $658.52Volume13.7MAvg Vol23.1MGross Margin50.37% The stock is rallying on use, not on new deals Perhaps one of the biggest fallacies driving AMD's stock upward has been the correlation between usage and success.

In 2025, AMD announced several deals with AI hyperscalers to provide them with hardware. It then did just as expected, and delivered computing units to OpenAI and Meta Platforms. Those processors are now being deployed, and are seeing major popularity as compute sources for products like Meta Muse. However, all that growth had already been accounted for in AMD's valuation before 2026 kicked off. The recent rally in the stock was driven by investors looking at the actual usage of AMD's chips, but it doesn't make a ton of sense for a stock to benefit twice from the same sales deals.

The chipmaker could ink more such deals, but the value of those may have been baked into the stock already at this point. This could cause AMD's stock to struggle in 2027, and I think history is pretty clear on what usually happens to a stock when it enters the year highly valued: It either tumbles to a reasonable valuation or stays flat as the business grows into its valuation. Neither option would be great for shareholders, which is why I think investors should find a different AI stock to invest in for 2027.

(-2.03%)-$12.58Motley Fool Stock Advisor’s Latest PickGet Access—% Avg ReturnBroadcomNASDAQ: AVGO$361.54(+0.39%)+$1.40NvidiaNASDAQ: NVDA$229.28(-0.52%)-$1.20*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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