AMD Faces Challenges in AI GPU Market as Analysts Lower Expectations

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Major financial institutions, including HSBC and Goldman Sachs, downgrade AMD's stock rating due to concerns about its AI GPU roadmap and increased competition in the semiconductor industry.

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AMD Faces Downgrade Amid AI GPU Market Concerns

Advanced Micro Devices (AMD) is facing significant challenges in the artificial intelligence (AI) GPU market, leading to a series of downgrades from major financial institutions. HSBC and Goldman Sachs have both lowered their ratings for AMD, citing concerns about the company's AI GPU roadmap and increased competition in the semiconductor industry 12.

HSBC's Double Downgrade

HSBC analyst Frank Lee delivered a substantial blow to AMD by double-downgrading the stock from "buy" to "reduce" and slashing the price target from $200 to $110 3. Lee expressed concerns about AMD's ability to penetrate the AI GPU market, stating that the company's "AI GPU roadmap is less competitive than previously anticipated" 2.

The bank's pessimistic view stems from several factors:

  1. Lukewarm demand for AMD's new MI325 GPU
  2. Expected lower spec HBM3e memory in MI325 due to Samsung's production struggles
  3. Delayed competition with Nvidia's NVL rack platform until late 2025 or early 2026

HSBC has significantly lowered its forecast for AMD's AI GPU revenue in fiscal year 2025 from $12.3 billion to $8.1 billion, well below the consensus estimate of $9.5 billion 4.

Goldman Sachs Joins the Cautious Chorus

Goldman Sachs analyst Toshiya Hari has also adopted a cautious stance on AMD, downgrading the stock to a neutral rating and lowering the price target from $175 to $129 1. While Goldman Sachs remains optimistic about AMD's ability to gain market share from Intel in traditional computing sectors, they express concerns about:

  1. The ingress of Arm-based custom CPUs potentially reducing AMD's stock multiple
  2. Pressure on AMD's revenue growth relative to peers
  3. Upward pressure on AMD's operating expenses

Broader Industry Trends and Challenges

The downgrades come amid broader concerns in the semiconductor industry:

  1. Rising competition from Arm-based processors, with server CPU market penetration reaching 7% in Q3 2024, up from less than 5% in 2023 12
  2. Slower-than-expected growth in AMD's data center GPUs
  3. Weakness in PC and traditional end-demand

AMD's Future Outlook

Despite the current challenges, AMD is expected to launch its MI350 GPU in the second half of 2025 2. However, analysts believe that AMD may not have an AI rack solution to compete effectively with Nvidia's NVL rack platform until late 2025 or early 2026, when the MI400 is expected to launch 2.

The company is also facing a deceleration in its client revenue growth, with HSBC projecting a 12% year-over-year growth in FY25, down from an estimated 44% growth in FY24 5.

Market Reaction and Analyst Consensus

Following these downgrades, AMD's stock price has experienced significant pressure, with shares falling by 2-4% in recent trading sessions 34. However, it's worth noting that the majority of analysts covering AMD remain positive on the stock, with 43 out of 54 analysts maintaining a buy or strong buy rating, according to LSEG data 3.

As AMD navigates these challenges, investors and industry observers will be closely watching the company's ability to execute its AI strategy and maintain its competitive position in the rapidly evolving semiconductor landscape.

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