AMD Faces Challenges in AI Market as Bank of America Downgrades Stock

Bank of America lowers AMD stock rating, citing Nvidia AI dominance and declining PC demand

Serving tech enthusiasts for over 25 years. TechSpot means tech analysis and advice you can trust. What just happened? AMD has spent most of this year taking advantage of Intel's struggles, but Team Red was dealt a blow yesterday when Bank of America downgraded its stock from Buy to Neutral. BofA Securities cited risks including competition in an AI chip industry dominated by Nvidia, as well as weakening PC sales. The company's share price is now down almost 10% compared to one week ago. Bank of America analysts wrote that in addition to the competitive risks against Nvidia in the AI market, cloud customers are showing a growing preference for custom chips from Marvell Technology and Broadcom, which is limiting AMD's potential to gain market share. It was also noted that AMD's largest cloud customer, Amazon, has indicated its preference for alternative custom products, which again could restrict AMD's market share in the AI accelerator industry. "AMD's pipeline remains 1 year-plus behind Nvidia's (which is accelerating) and lacks a competitive networking (switching, optics) portfolio," said BofA analyst Vivek Arya. "Longer term, we continue to see Nvidia at 80%-plus accelerator share, custom chips at 10-15%, with the remaining shared by AMD and a range of startups." Arya also warned that there could be a PC market correction in the first half of 2025, which might impact AMD. According to Gartner, worldwide PC shipments in the third quarter of 2024 totaled 62.9 million units, a 1.3% decline from the same period in 2023. But Gartner believes PC demand will see more robust growth in 2025, when the PC refresh will be at its peak. Arya lowered his rating on AMD stock and cut his price target to $155 from $180. Sales and earnings estimates for the company were also reduced. The 2025 GPU revenue estimates were cut significantly, to $8 billion from $8.9 billion, far below the consensus estimate of $9.6 billion. The analyst did have some good news for AMD. He noted that Lisa Su's firm could take advantage of the struggles at Intel, which recently ousted Pat Gelsinger. It's something we're already seeing. During the recent Black Friday event, almost 90% of the motherboards sold by German retailer Mindfactory came from AMD, which is also dominating the US Amazon sales charts for both CPUs and mobos. Moreover, the most recent Steam survey shows AMD has climbed to its highest-ever user share in the CPU category, reaching almost 36%.

Bank of America downgrades AMD due to potential market share losses

Increasing competitive pressures will begin weighing down shares of Advanced Micro Devices , according to Bank of America. Analyst Vivek Arya downgraded the semiconductor stock to neutral from buy and cut his price target to $155 from $180. The new forecast is still 11% above where shares closed on Friday. AMD YTD mountain AMD YTD chart Arya pointed to Advanced Micro Devices' limited market share gain potential due to "higher competitive risks in AI against best-of-breed NVDA's dominance." Cloud customers have also begun to show their preference for custom chips, further weighing on the company's potential market share. "Recently largest cloud customer Amazon strongly indicated its preference for alternative custom (Trainium/ MRVL) and NVDA products, but a lack of strong demand for AMD," Arya added. "AMD does have a strong presence at Microsoft, Meta and Oracle, but their capex requirements for NVDA's premium Blackwell could also limit share gain opportunity for AMD MI products. ... [Long term], we continue to see NVDA at 80%+ accelerator share, custom chips 10-15%, with remaining shared by AMD and range of start-ups." As a result of these headwinds, Arya lowered his 2025 AI GPU forecast for the company to $8 billion from $8.9 billion prior, which implies that Advanced Micro Devices will maintain its market share of around 4%. Shares of Advanced Micro Devices have slipped 6% in 2024. The stock lost more than 1% in the premarket following the downgrade. Rival Nvidia, meanwhile, is up more than 187% year to date. Despite AMD's lackluster performance, analysts are generally bullish on the stock. Of the 54 who cover the chipmaker, 44 have a buy or strong buy rating, LSEG data shows. The average price target on the stock also indicates upside of more than 32%.

BofA: AMD Can Witness PC Slowdown in 2025 & AI Competition From Broadcom And Marvell

This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy. In a fresh analyst note, Bank of America has downgraded AMD's shares to Neutral from Buy, cutting the firm's share price target to $155 from an earlier $180. BofA's adjustment is based on the belief that a broadening in the AI chip market will lead to greater demand for products from Marvel and Broadcom and limit AMD's ability to gain market share. Excessive demand for NVIDIA's GPUs, coupled with high prices, have spurred big tech companies to develop custom AI chips or seek to diversify their sources as they do not want to be left behind in building the infrastructure required to compute AI workloads. BofA Believes AMD Will Face Tighter PC Market In 2025 Following Robust 2024 Growth AMD's position in the chip design industry provides it with a one-of-a-kind business model where its two primary competitors are in two different industries. When it comes to x86 processors, AMD also benefits from being the only large-scale alternative available to Intel's products. In its latest note that reduces AMD's share price target to $155 from $180 and cuts the rating to Neutral from Buy, BofA is aware of this fact. The bank shares that AMD's ability to capitalize on Intel's weakness, coupled with the ability to target the AI market, stands to enable the firm to grow its revenue by 15% to 20% annually. Yet, this is the only optimistic 'note' in BofA's coverage. The bank adds that the broadening out of the AI GPU market away from NVIDIA and towards firms such as Marvell and Broadcom stands to create competition for AMD. Unlike the x86 CPU market which is dominated by Intel and AMD, the GPU and particularly the AI accelerator market is broader. Firms such as Marvell and Broadcom are emerging to be key players in this fast-growing sector. According to BofA, NVIDIA's dominance in the AI accelerator market, coupled with the fact that cloud providers are also seeking custom chips from Marvell and Broadcom, constrain AMD's ability to operate in the AI industry. Marvell, in particular, has been aggressively pursuing custom AI processors. During the firm's second-quarter earnings, management shared that these include "projects with a new Tier 1 AI customer we announced earlier this year, are also tracking well to key milestones." Marvell added that when it came to the firm's expected high teen data center market growth for fiscal Q3, "the largest contributor to this growth will be our AI custom silicon programs as they begin to ramp meaningfully in the third quarter." Similarly, media reports have also claimed that Broadcom is working with OpenAI to enable the latter to develop custom AI GPUs to reduce reliance on NVIDIA's products. AWS provider Amazon made headlines earlier this year after announcing custom AI chips, while Google already uses TPUs for AI computing purposes. BofA adds that while AMD's client PC sales grew by 40% half-over-half during H1 2024, this momentum can lead to a correlation in the first half of 2025. During H1 2024, AMD's Client business posted $2.86 billion in revenue, which was a 65% growth over H1 2023's figures. According to BofA, a PC market correction could slow down AMD next year. As a result, the bank reduced its 2026 price-to-earnings multiple for the firm to 28x and assigned it a $155 share price target.

AMD stock slides as BofA cuts to Neutral on 2025 downside risks to expecations By Investing.com

Investing.com -- Bank of America downgraded Advanced Micro Devices (NASDAQ:AMD) to Neutral from Buy in a research note on Monday, citing downside risks to its 2025 outlook. The firm lowered its price target for the stock to $155 from $180 and reduced its 2025/26 EPS estimates by 6% and 8%, respectively, reflecting a 13-23% gap versus consensus. Two primary factors are said to be driving BofA's cautious stance. First, the bank says competitive pressures in AI from NVIDIA (NASDAQ:NVDA) and custom chip providers like Marvell (NASDAQ:MRVL) and Broadcom (NASDAQ:AVGO) could limit AMD's market share gains. The bank noted, "Recently largest cloud customer, Amazon (NASDAQ:AMZN) strongly indicated its preference for alternative custom (Trainium/ MRVL) and NVDA products, but a lack of strong demand for AMD," while other major cloud players such as Google (NASDAQ:GOOGL) have similar preferences. BofA forecasts AMD maintaining just 4% of the $200 billion AI accelerator market in 2025, compared to NVIDIA's commanding 80%+ share. Second, a potential correction in the PC processor market during the first half of 2025 adds to concerns. After a significant 40% half-on-half surge in AMD's client PC sales during late 2024, Bofa believes the market could experience a slowdown, challenging AMD's growth momentum. Despite these headwinds, BofA acknowledged AMD's consistent execution and its ability to capitalize on Intel's restructuring struggles, providing opportunities to expand its market share in PC and server CPUs. The note also highlighted AMD's strong presence with Microsoft (NASDAQ:MSFT), Meta (NASDAQ:META), and Oracle (NYSE:ORCL) as positives but flagged limited opportunities for the company to surpass Street estimates in the AI space. While AMD remains well-positioned in the compute market, BofA believes expectations for 2025 could temper enthusiasm, leading to the downgrade.

Why Advanced Micro Devices Plunged Today | The Motley Fool

The semiconductor stock fell today on the heels of an analyst downgrade from a Wall Street sell-side analyst, capping off a difficult few trading days for the artificial intelligence (AI) hopeful. Today, Bank of America analyst Vivek Arya downgraded AMD to neutral from buy, while lowering his price target from $180 to $155. The timing of today's downgrade was also noteworthy. On Friday, AMD's stock also declined following a statement from an Amazon executive that Amazon Web Services (AWS), the largest cloud platform on the planet, was "not yet seeing" demand for AMD's MI300 roster of AI GPUs. AMD had hoped to make inroads in the exploding AI market, but at least this quote suggests the major clouds are either buying leader Nvidia's most advanced chips or merely making their own in-house designed training chips at lower cost. Just last week, Amazon said its Trainium2 chips were available, and that it was building a "supercluster" with said Trainium chips for outside customers and AI start-up Anthropic, in which Amazon has invested. Apparently, BofA sees the rise of cheaper internally made chips from all cloud providers, as well as Nvidia's upcoming Blackwell chip, as crowding out the opportunity for AMD in AI. Additionally, Arya noted some have projected soft PC demand in the first half of 2025, which could further weigh on AMD results. AMD has been a stock market darling for a number of years, but that has pushed its valuation up to 122 times earnings and nearly 30 times next year's projections. With expectations so high, it's perhaps not surprising to see the stock react this harshly on today's downgrade.