AMD Stock: Analyst Downgrade Hits Chip Maker on Weak AI Momentum

TLDR

Table of Contents

Seaport Research downgraded AMD to Neutral from Buy due to slower AI accelerator business growth
Supply chain checks show AMD struggling to convert trial customers into large orders
Major customers Microsoft and Meta are reviewing AI budgets, potentially limiting chip orders
AMD increasingly using discounts and support programs to drive adoption, pressuring margins
Despite downgrades, most Wall Street analysts remain optimistic with average price target of $184.91

Advanced Micro Devices shares face fresh pressure after Seaport Research downgraded the stock to Neutral from Buy. The move comes as supply chain checks reveal slowing momentum in AMD’s critical AI accelerator business.

Analyst Jay Goldberg cited weaker-than-expected progress in the company’s artificial intelligence division. Recent field research suggests AMD is having trouble converting early customers into major buyers.

The chip maker has struggled to grow orders from companies it showcased at its AI event earlier this year. Most of these potential customers have only purchased trial systems for AMD’s MI Series accelerators.

Goldberg doesn’t expect these small initial sales to become large orders until future product generations arrive. This timeline could stretch the company’s path to meaningful AI market share gains.

Customer Budget Pressures

Major customers Microsoft and Meta are reviewing their AI spending budgets. Both tech giants represent key potential buyers for AMD’s data center chips.

The budget reviews could limit near-term orders for AMD’s AI accelerators. This creates uncertainty around the company’s revenue projections for the coming quarters.

AMD has responded by increasing its use of discounts and customer support programs. The company hopes these incentives will drive faster adoption of its AI chips.

However, this strategy comes with risks to profit margins. Heavy discounting could pressure AMD’s financial performance even if sales volumes increase.

Market Position Challenges

AMD currently trades at $161.79, down 8% over the past 30 days. The stock has gained 37% year-to-date despite recent weakness.

Seaport’s downgrade removed its price target entirely. This signals reduced confidence in the stock’s near-term prospects.

The analyst noted that AMD remains a strong long-term player in AI chips. However, he warned that market share gains are still years away.

AMD faces intense competition from established players in the AI chip space. Breaking through requires both superior technology and customer relationships.

Wall Street Sentiment

Despite the recent downgrade, most analysts remain optimistic about AMD. Out of 37 analysts surveyed, 26 rate the stock a Buy while 11 recommend Hold.

The average price target sits at $184.91, suggesting 14% upside from current levels. Stifel maintains a $190 target while Raymond James sees $200 potential.

Bank of America Securities recently reiterated its Buy rating with a $200 price target. These bullish calls reflect confidence in AMD’s long-term AI strategy.

No analysts currently recommend selling the stock. This unanimous support shows Wall Street still believes in AMD’s fundamental business strength.

The company continues to gain market share in data centers. Revenue growth remains strong across most business segments.

AMD’s position as the primary alternative to dominant competitors keeps it relevant. However, converting this positioning into major AI wins remains the key challenge.

Supply chain data suggests the path forward may take longer than initially expected. Customer adoption appears more cautious than AMD management projected.

Recent supply chain checks indicate AMD’s AI accelerator shipments have slowed compared to earlier forecasts for the third quarter.

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