AMD Stock Plummets as Multiple Analysts Downgrade on AI Competition Concerns

Advanced Micro Devices (AMD) has faced a series of setbacks as multiple prominent Wall Street firms downgraded their outlook on the semiconductor giant’s stock. The company’s shares have experienced significant decline, dropping to $116.04, marking a 4.76% decrease on Friday.

HSBC initiated the downturn by issuing a double downgrade, reducing AMD’s rating from “buy” to “reduce” and slashing its price target from $200 to $110. The downgrade was primarily driven by concerns about AMD’s artificial intelligence (AI) chip strategy and revenue prospects. HSBC analysts highlighted that demand for AMD’s MI325 graphics processing unit (GPU) has fallen short of expectations, leading to a substantial reduction in their fiscal 2025 AI GPU revenue forecast from $12.3 billion to $8.1 billion.

Following HSBC’s move, Goldman Sachs added to the pressure by downgrading AMD from “Buy” to “Neutral” and reducing its price target from $175 to $129. Goldman Sachs analyst Toshiya Hari expressed concerns about increasing competition from Arm-based custom central processing units and the intense competition in accelerated computing. The analyst noted that these factors could potentially impact AMD’s revenue growth compared to its peers and put pressure on the company’s spending profile.

The impact of these downgrades has been substantial, with AMD’s stock experiencing a dramatic decline from its 52-week high of $227.30 reached in March 2024. The stock has tumbled 46% from that peak, significantly underperforming the broader semiconductor sector. Over the past six months alone, AMD shares have declined by 28%, more than triple the 9% decline seen in the PHLX Semiconductor Sector.

In an attempt to diversify its market presence, AMD recently announced a strategic partnership with Absci, an AI-based drug developer. The collaboration includes a $20 million investment from AMD and will utilize AMD’s Instinct accelerators and ROCm software for AI drug discovery workloads. However, this positive development has been overshadowed by the broader concerns about AMD’s competitive position in the AI chip market.

Analysts are particularly worried about AMD’s ability to compete with industry leader Nvidia. The upcoming launch of AMD’s MI350 chip later this year is viewed with skepticism, as HSBC analysts suggest it may struggle to compete effectively against Nvidia’s well-established AI chips. Furthermore, AMD isn’t expected to have an AI-rack solution to compete with Nvidia’s NVL rack platform until late 2025 or early 2026.

The timing of these downgrades is particularly significant as AMD prepares to report its fourth-quarter and full-year 2024 earnings on January 28. The market will be closely watching these results for signs of AMD’s progress in the AI chip market and its ability to maintain growth in its traditional CPU and GPU segments.

Despite the recent downgrades, it’s worth noting that the overall analyst sentiment remains cautiously optimistic. Wall Street’s consensus rating for AMD remains a Moderate Buy, based on 23 Buy, nine Hold, and one Sell ratings over the last three months. However, the wide range in price targets, from a low of $110 to a high of $250, reflects the uncertainty surrounding AMD’s near-term prospects.

The semiconductor industry continues to evolve rapidly, with AI capabilities becoming increasingly crucial for future growth. AMD’s ability to navigate these challenges while maintaining its competitive edge in traditional markets will be critical for its stock performance in the coming months. As the company approaches its earnings announcement, investors will be looking for clear signals about its strategy to address these concerns and maintain its position in the highly competitive semiconductor market.