There’s a big opportunity in the AI chip field available to companies operating in the space, but maybe not quite as big as some make it out to be.
That is the conclusion reached by Morgan Stanley’s Joseph Moore, who thinks Advanced Micro Devices (NASDAQ:AMD), in particular, is set to suffer from this misunderstanding.
“We like the AMD story, but investor expectations for the AI business still seem too high to us. We see limited upward revision potential for AI from here,” said the 5-star analyst. “We continue to see AMD as increasingly well positioned in their core markets, but persistently high AI expectations make us more cautious on their ability to justify a premium multiple.”
AMD is trying to close the gap on AI chip leader Nvidia, but Moore believes it is unlikely AMD will manage to do so in a meaningful way. The analyst underscores the potential impact of Nvidia’s upcoming Blackwell GPU architecture, a factor he believes investors may have overlooked.
AMD is often seen as the one company that might be able to cut into Nvidia’s dominance in the AI chip market, and because unlike custom silicon alternatives, AMD can match Nvidia’s ability to operate across multiple cloud environments, and provide cloud service providers (CSPs) with an option to “avoid vendor lock-in,” Moore thinks Nvidia also considers AMD a real threat. As such, Moore’s checks show Nvidia is “clearly focused on defending market share, accelerating their roadmap cadence and becoming more aggressive with pricing,” all of which pose a problem for AMD’s ambitions.
Additionally, part of Moore’s positive thesis for AMD has been based on the idea that following a “severe downturn” in all markets, AMD’s core business is primed for acceleration, with AI also playing a supporting role in furthering “multiple expansion.”
“We still believe in that thesis,” Moore goes on to say, “but AI has moved from a secondary driver to the primary one.”
Accordingly, Moore has downgraded his rating on AMD from Overweight (i.e., Buy) to Equal-weight (i.e., Neutral), while keeping his $176 price target intact. That leaves room for 9.5% gains from current levels. (To watch Moore’s track record, click here)
So, that’s the Morgan Stanley view, what does the rest of the Street have in mind for AMD? 6 other analysts have also issued Hold ratings, but they are outplayed by 29 Buy recommendations, all culminating in a Strong Buy consensus rating. Going by the $191.03 average price target, a year from now, shares will be changing hands for a ~19% premium. (See AMD stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
