Advanced Micro Devices (AMD) investors may find themselves navigating a turbulent landscape as the competition in the artificial intelligence (AI) sector intensifies. HSBC has recently expressed significant concerns regarding AMD’s positioning in this rapidly evolving market, leading to a downgrade on the chipmaker’s stock from a “buy” to a “reduce” rating. The price target has been slashed to $110 per share, a substantial dip from its previous valuation of $200. This forecast suggests an expected decline of approximately 13% from AMD’s closing price on Tuesday, reflecting the growing skepticism surrounding the company’s AI strategies.
The semiconductor industry is no stranger to fierce competition, especially when it comes to graphic processing units (GPUs), which are critical for supporting AI developments. HSBC analyst Frank Lee highlights that AMD will face mounting pressure from formidable players such as Nvidia, Marvell, and Broadcom. Competition among these firms has escalated, and despite AMD’s shares already taking a hit with a 26% drop over the past three months, the challenges are far from over. The relentless rivalry is particularly concerning as GPUs have become increasingly essential to the success of AI applications, meaning that any slip in performance or innovation can have severe repercussions for market positioning.
One key point of contention in HSBC’s assessment relates to AMD’s AI GPU roadmap. Analyst Frank Lee has indicated that his expectations regarding AMD’s competitive edge in this area have diminished. The anticipated penetration into the AI GPU market now seems unrealistic, particularly as performance and demand for their upcoming MI325 GPU appear lackluster. The issues are exacerbated by Samsung’s production difficulties with the more advanced HBM3e memory, which is crucial for the MI325’s performance. If AMD cannot deliver superior technology, it risks falling behind its competitors, making it challenging to carve out a significant market share within the AI sector.
Beyond AI, HSBC’s outlook for AMD’s overall market performance is equally cautious. Their projections suggest that client revenue growth may only reach 12% year-over-year in fiscal year 2025, which stands in stark contrast to an impressive 44% growth rate for fiscal year 2024. While this growth rate still outpaces the anticipated overall unit growth in the personal computer market, it reflects a slowdown that could worry investors looking for consistent performance and expansion.
Despite HSBC’s pessimism, it’s noteworthy that a majority of analysts maintain a largely positive view on AMD, with 43 out of 54 analysts issuing buy or strong buy ratings. Additionally, the average price target of analysts suggests a potential upside of around 43%. However, the divergence in opinion highlights the uncertainty plaguing AMD’s stock, where optimism among some analysts contrasts sharply with the cautious outlook from others.
Investors should prepare themselves for a challenging environment. Amidst strong competition and a questionable roadmap for their AI initiatives, AMD may encounter difficulties that could impede its growth trajectory in the near future.