Advanced Micro Devices (NASDAQ:AMD) has a history of eating away at rivals’ dominance by delivering superior products, as evidenced by its disruption of Intel’s supremacy in the CPU market. Now, the Lisa Su-led firm has set its sights on becoming the main challenger to Nvidia in the AI chip game.
Stay Ahead of the Market:
- Discover outperforming stocks and invest smarter with Top Smart Score Stocks
- Filter, analyze, and streamline your search for investment opportunities using Tipranks' Stock Screener
The narrative surrounding AMD’s ability to close the gap with Nvidia has been a cornerstone of the bullish outlook on the stock. However, its underwhelming performance over the past year raises questions about investor confidence in that potential. To wit, the shares are down by 42% since peaking in March 2024.
But could it be that with the company poised to challenge the AI leader, the stock has now suffered enough?
Not according to HSBC analyst Frank Lee. In fact, Lee believes the bottom has not been reached yet.
“We see additional downside as we now believe its AI GPU roadmap is less competitive than we previously thought. Hence, we believe AMD wouldn’t be able to penetrate the AI GPU market as much as we had earlier anticipated,” Lee opined.
So, that puts a dent in that bull thesis. Specifically, on account of “lukewarm demand” for its new MI325 GPU, Lee forecasts “downside” for AI GPU momentum in the first half of the year. This is because Lee expects the MI325 to feature lower-spec HBM3e memory, as Samsung continues to face difficulties in scaling up production of its higher-spec HBM3e.
Moreover, although AMD is expected to launch its MI350 chip in 2H25 as planned, it is unlikely to introduce an AI rack solution capable of competing with Nvidia’s NVL rack platform before late 2025 or early next year, when it releases the MI400.
As a result, Lee has lowered his previously FY25 AI GPU revenue forecast from $12.3 billion to $8.1 billion, which is now some distance below the Street’s $9.5 billion estimate. Lee has also moved his FY25 AI GPU revenue forecast basis from a “bullish supply-side assumption” of approximately 84,000 wafers for AMD’s FY25 CoWoS (chip on wafer on substrate) capacity allocation to a more muted demand-driven view, on the back of increasing uncertainty regarding its penetration rate with CSP (cloud service provider) customers. Additionally, Lee has reduced his traditional datacenter server revenue forecast by 5%.
Furthermore, while Lee expects AMD to continue gaining market share in server CPUs in FY25, with the analyst anticipating the overall server industry to grow only 5% year-over-year, the result will be slower overall data center revenue growth of 34% rather than his previous forecast of 70% growth.
The verdict? Lee downgraded AMD shares from Buy to Reduce and slashed his price target from $200 to $110, implying a further ~10% downside from current levels. (To view Lee’s track record, click here)
Lee, however, stands alone as the Street’s sole AMD bear. With 24 additional Buy recommendations and 8 Holds, the analyst consensus rates the stock a Moderate Buy. Wall Street’s average price target remains bullish; at $181.97, it suggests potential 12-month returns of 49%. (See AMD stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
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.
