Shares of Advanced Micro Devices (AMD) were down 4.3% on Wednesday after a Top-rated HSBC (HSBC) analyst, Frank Lee, CFA, double downgraded the stock’s rating to Sell from Buy. Also, he slashed AMD stock’s price target to $110 (implying 9.7% downside) from $200. This bearish move by Lee was driven by concerns over AMD’s competitive position in the AI chip market, particularly against dominant player Nvidia (NVDA).
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Lee pointed to several factors that led to the ratings downgrade. Let’s take a look at them:
- Delayed AI GPU Roadmap: Lee raised concerns about possible delays in AMD’s AI GPU plans, especially with the MI325 GPU. He also pointed out that supply chain issues could limit the MI325’s memory specifications. As a result, he lowered the forecast for AMD’s AI GPU revenue in Fiscal 2025 to $8.1 billion, down from $12.3 billion, which is below the consensus estimate of $9.5 billion.
- Limited Growth in Other Business Segments: The analyst also mentioned that AMD’s client growth and non-AI data center revenue are likely to slow down. He pointed to slower PC market growth and weak performance in the traditional server market as major concerns. Lee now expects client revenue to grow by 12% in Fiscal 2025, down from the 44% growth predicted for Fiscal 2024. He also lowered the revenue estimate for traditional data center servers by 5%.
- AI Rack Solution Lags Behind: Lee believes that AMD may not have a competitive AI rack solution until the release of its MI400 series, which is expected to come out in late 2025 or early 2026.
- Competition from Nvidia and Other Players: Lee also emphasized the intense competition from Nvidia, a major player in the AI chip market. He pointed out the rising threat from companies like Marvell (MRVL) and Broadcom (AVGO), which are offering alternative solutions in the AI space.
Lee’s cautious outlook reflects the rising challenges faced by AMD in the rapidly growing AI chip market. Going forward, the company will need to show strong progress in its AI chip development to regain investor confidence.
Is AMD a Buy, Hold, or Sell?
Turning to Wall Street, AMD has a Moderate Buy consensus rating based on 24 Buys, eight Holds, and one Sell assigned in the last three months. At $181.97, the average AMD price target implies 49.35% upside potential. Shares of the company have declined 31.2% over the past six months.
