AMD’s (NASDAQ:AMD) 2024 did not pan out as expected. AI might have been all the rage but AMD’s status as the main challenger to Nvidia in the AI chip space was given short shrift by investors.
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As the Lisa Su-led company failed to meet elevated investor expectations in Data Center GPUs and faced cyclical challenges in its Embedded (FPGA), Server CPU, and Gaming segments, the stock lagged most of its peers, fallings ~20% over the past year.
The problem, however, according to Goldman Sachs analyst Toshiya Hari, is that looking ahead, 2025 is not shaping up to be a good year for the semi giant. And that has merited a rejig to Hari’s model.
“We reduce our 2025/26 revenue estimates by 10%/11%, respectively, as we reflect a more conservative PC and traditional server unit outlook as well as a Data Center GPU growth trajectory that is more modest given the rise in competitive intensity vis-a-vis Nvidia and ASICs,” said Hari, who ranks in the top 1% of Wall Street stock experts.
As such, the 5-star analyst’s 2025/26 non-GAAP EPS estimates (excluding SBC) have been revised downwards from $5.17 and $7.38 to $4.32 and $6.02, respectively.
Although AMD has established a solid customer base in Data Center GPUs, with clients including Microsoft, Meta, Oracle, and IBM, and has successfully increased revenue from near-zero (excluding HPC) in 2023 to around $5 billion last year, Hari anticipates slower growth in 2025. This is down to existing customers balancing additional purchases of AMD’s Instinct GPUs with Nvidia’s Blackwell product cycle and a low likelihood AMD will bring in new cloud customers in 2025, based on recent industry discussions.
Additionally, Hari thinks the rise of Arm-based CPUs poses another problem. According to Mercury Research, over the past five years, and mainly to Intel’s detriment, AMD has increased its revenue share in x86 server CPUs from approximately 4% in 3Q19 to 34% in 3Q24. Moving forward, while Hari expects AMD to accelerate its share gains in the high-value Enterprise segment, the competitive landscape in the Cloud sector is likely to intensify due to the growing adoption of Arm-based CPUs, such as AWS’s Graviton, Google’s Axion, Microsoft’s Cobalt, and Nvidia’s Grace. The analyst still projects continued share gains for AMD through 2026 but at a slower pace compared to the past three years (~200bps annually vs. ~430bps on average over the previous three years). Meanwhile, Hari is calling for a ~300bps increase in Arm’s market share and a ~500bps decline for Intel.
In light of these factors, Hari has downgraded AMD from Buy to Neutral and slashed his price target from $175 to $129, which implies ~10% upside from current levels. (To view Hari’s track record, click here)
Hari’s cautious stance aligns with that of 8 other analysts, who also rate AMD as a Hold (i.e., Neutral). However, 23 analysts still maintain Buy ratings, while only 1 has issued a Sell, resulting in a Moderate Buy consensus rating. Based on the $175.69 average price target, investors could see returns of ~50% a year from now. (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.
