Advanced Micro Devices (NASDAQ:AMD) has faced a significant challenge over the past year. Once regarded as the leading contender to chip away at Nvidia’s dominance in the AI chip market, its potential to make a substantial impact has diminished.
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This is a point picked up by Barclays analyst Thomas O’Malley, who explains the factors contributing to AMD’s struggles.
“Thanks to NVDA’s system-level architecture expertise, software/application moat, and networking dominance, as well as the rise of hyperscale custom ASICs, AMD’s DC GPU prospects don’t appear as bright as once expected this time last year,” O’Malley opined.
That said, due to the ongoing surge in AI investment, O’Malley believes AMD should comfortably achieve year-over-year growth of a few billion dollars for its MI series accelerators, believing that investor expectations have “come down to that ballpark as well.”
However, O’Malley also makes the case that AMD won’t probably have any substantial opportunities to compete for additional market share until the “architectural expertise” gained from the ZT Systems acquisition is integrated into its roadmap and the considerable software gap with NVIDIA is “materially lessened.”
While AI has become the focal point, it is not the be-all and end-all. O’Malley also highlights AMD’s ongoing market share gains in the x86 PC and server segments as “another reason to like the name here.” The analyst anticipates AMD will further expand its share in 2025, supported by an impressive PC and server CPU roadmap, while Intel continues to grapple with structural challenges in its internal processes. O’Malley expects AMD’s Client business to outpace Intel’s by 7% in 2025 and 6% in 2026. Similarly, he sees AMD’s Server CPU business surpassing Intel’s by 10% in 2025 and 6% in 2026.
With sentiment so downbeat, O’Malley notes that “recent trading performance places AMD at a steep discount to other accelerator-exposed names.” In fact, O’Malley also points out that despite AMD holding the third-largest AI compute revenue base currently, the company trades at a valuation comparable to Intel based on his 2026 forecasts, which already factor in over $10 billion in DC GPU revenue for that year. O’Malley’s insights on this matter are quite illuminating.
“Clearly the concern here is that 2025 could be flat, and at that rate 2026 is surely not doubling Y/Y, but we would make the point here that valuation implies that expectations for a more challenged path forward in AI are already in the stock, and the name undoubtedly deserves more credit than peers with far less AI exposure,” the analyst explained.
What does this mean for investors? O’Malley gives AMD stock an Overweight (i.e. Buy) rating, with a $140 price target suggesting a potential 12% gain in the coming months. (To watch O’Malley’s track record, click here)
The consensus price target reflects greater optimism, standing at $172.24, which suggests a potential one-year return of ~39%. The overall consensus is based on 21 Buy ratings, 10 Hold ratings, and just 1 Sell, leading to a Moderate Buy recommendation. (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.
