Shares of semiconductor companies powering artificial intelligence (AI) applications have risen significantly. For example, Nvidia (NASDAQ:NVDA) and Broadcom (NASDAQ:AVGO) stocks have gained about 146% and 30%, respectively, on a year-to-date basis. Despite this notable increase in these stocks, Morgan Stanley analyst Joseph Moore sees NVDA and AVGO as better AI plays compared to AMD. The analyst downgraded Advanced Micro Devices (NASDAQ:AMD) to Hold from Buy on June 10.
AMD stock closed 4.49% lower on Monday, June 10, after Moore downgraded it. The five-star analyst has a success rate of 56%. Moreover, Moore has generated an average return of 12.50% per rating over the past year.
Here’s Why Moore Downgraded AMD
While Moore acknowledges AMD’s strength in the AI arena, the analyst expresses concerns about investor expectations for its AI business, which he believes are overly optimistic. According to Moore, the potential for upward revisions in AMD’s AI exposure appears limited, making Nvidia and Broadcom more attractive options among the large-cap AI semiconductor stocks.
Moore also points out that AMD’s valuation looks expensive compared to other large-cap AI companies. Consequently, he is more confident in the potential for upward revisions in AI forecasts for Nvidia and Broadcom.
It’s worth noting that AMD stock is trading at a forward price-to-earnings (P/E) multiple of 47.82, which is well above the sector median of 23.73 and higher than the five-year average multiple.
Is AMD a Buy or Sell today?
While Moore downgraded AMD stock, most analysts covering it recommend a Buy. AMD stock has a Strong Buy consensus rating based on 28 Buys and seven Hold recommendations.
AMD stock has gained over 24% in one year. However, it underperformed NVDA and AVGO stocks in terms of growth during the same period. The analysts’ price target on AMD stock is $191.03, implying 19.14% upside potential from current levels.
