TLDR
- AMD shares have plummeted 49% since July 2024, underperforming the broader market
- The company faces growing competition from both Nvidia’s advanced AI chips and Intel’s aggressive pricing
- China sales are currently strong but face uncertainty due to potential export restrictions
- Recent ZT Systems acquisition hasn’t convinced analysts of AMD’s ability to close the competitive gap
- Wall Street remains divided with 23 Buy ratings versus 13 analysts recommending caution
The past year has been rough for AMD investors. While many tech companies ride the AI wave to new heights, Advanced Micro Devices has watched its stock value nearly halve since last summer.
The semiconductor designer’s shares have tumbled 49% since July 2024. This drop far exceeds the S&P 500’s more modest 13% retreat from January peaks.
What’s behind this dramatic underperformance? Several factors have combined to create a perfect storm for AMD’s stock.
The company competes in the red-hot artificial intelligence chip market. Its Instinct processors offer AI capabilities at competitive prices, and its Epyc server CPUs help manage these powerful systems.
But Wall Street has grown increasingly concerned about AMD’s position relative to industry leader Nvidia.
Competition Heats Up
KeyBanc analyst John Vinh recently downgraded AMD to a Neutral rating. Ranked among the top 3% of Wall Street analysts, Vinh believes AMD faces multiple headwinds.
The company’s recent acquisition of ZT Systems was intended to strengthen its AI capabilities. However, Vinh argues this move won’t provide immediate benefits.
Meanwhile, Nvidia continues advancing with its next-generation GB200 NVL chips. Rather than closing the gap, Vinh suggests the competitive distance is actually widening.
AMD CEO Lisa Su has touted the company’s achievements, noting that “AMD now powers five of the 10 fastest and 15 of the 25 most energy-efficient systems in the world.” Many of these systems are used for AI applications.
The company plans to release its enhanced Instinct MI350X chips later this year. But for now, many analysts see AMD playing catch-up in the AI race.
The China Question
One bright spot for AMD has been strong demand from China for its MI308 chips. Chinese hyperscalers like Alibaba and Tencent have shown interest, driven largely by AI company DeepSeek.
Vinh estimates MI308 GPU shipments will reach 300,000 units in 2025, accounting for most of AMD’s projected growth.
But this strength comes with uncertainty. The analyst warns that China’s AI demand may not be sustainable, particularly if new U.S. export restrictions emerge.
Outside of China, Vinh sees limited growth prospects. He bluntly states that “excluding China, there is very little to no growth in AI GPUs this year” for AMD.
Price Wars Loom
As if competition from Nvidia weren’t enough, AMD also faces pressure from Intel. Its longtime rival has cut prices on Lunar Lake products by 20-40%.
This aggressive pricing could force AMD to respond with its own reductions to maintain market share. Such moves would likely squeeze profit margins.
AMD’s gross margins could face further pressure from its Xilinx division, which Vinh notes is showing limited recovery after acquisition.
Intel poses another threat as it advances its 18A manufacturing process. If Intel delivers on its product roadmap, particularly with Diamond Rapids, AMD could lose ground in both consumer and server markets.
AMD already holds over 50% share among cloud hyperscalers. This dominant position makes further gains challenging, while leaving the company vulnerable to a resurgent Intel.
Valuation Questions
Even after the steep decline, AMD’s valuation metrics send mixed signals. The stock trades at 15 times forward earnings estimates and 5.9 times trailing sales.
These figures appear reasonable compared to Nvidia’s much higher multiples. Some investors might view the current price as an opportunity.
Vinh remains cautious, however. “While the stock is relatively inexpensive, trading at 13x our 2026 EPS estimate, semiconductor stocks rarely work with risk to GMs,” he explained. The concern about gross margins stems directly from Intel’s price cuts.
Wall Street opinion remains split on AMD’s prospects. Alongside Vinh, 12 other analysts recommend caution. However, 23 analysts still maintain Buy ratings, giving the stock a Moderate Buy consensus.
The average price target stands at $145.74, suggesting a potential 56% upside from current levels.
