AMD stock downgraded despite the AI chips hype

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on Jun 10, 2024
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  • Morgan Stanley sees limited upside in AMD stock from here.
  • Analyst Joseph Moore says AI expectations for AMD are too high.
  • AMD share price is down well over 20% versus its YTD high at writing.

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Advanced Micro Devices (NASDAQ: AMD) stock price is in the red today after a Morgan Stanley analyst issued a dovish note against it. 

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AMD stock has limited upside from here

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Joseph Moore does not expect AMD stock to benefit as much from artificial intelligence as many believe. His “equal weight” rating on the semiconductor company is coupled with a $176 price target. 

That still suggests about a 5.0% upside on its previous close. The analyst does like the AMD story but told clients in a research note on Monday:

We see limited upward revision potential for AI from here and we move to EW, with a preference for NVDA and AVGO among large cap AI semis.

Moore took a dovish stance on Advanced Micro Devices today because it’s relatively more expensive compared to other AI stocks

Do AMD shares warrant a premium multiple?

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Joseph Moore expects a strong product lineup of AMD to help it expand its share in client and server central processing units in 2024. 

But the very high artificial intelligence expectations will likely make it difficult for AMD shares to justify a premium multiple, he added. 

Note that Morgan Stanley is confident that the chipmaker will deliver on its commitment to $4.0 billion in AI-related revenue in 2024. Still, its analyst sees limited upside because the buy-side forecasts are significantly higher at writing. 

Investor expectations still anchor on supply chain based forecasts that point to a number north of $6bn, despite continued messaging from AMD that it takes time to build an ecosystem around a new solution, and that they’d be aggressive with builds.

The downgrade on AMD stock arrives only days after its management announced new AI chips at Computex to better compete with their bigger rival Nvidia Corp as Invezz reported here.

Advanced Micro Devices versus $NVDA

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Morgan Stanley analyst Joseph Moore is not bullish on AMD stock price also because the company’s $4.0 billion target for full-year AI revenue is significantly weaker than Nvidia.

Plus, Advanced Micro Devices is primarily generating its AI revenue from inferencing versus $NVDA dominating the training side as well. His research note reads:

Our checks would indicate that Nvidia is clearly focused on defending market share, accelerating their roadmap cadence and becoming aggressive with pricing. AMD is viewed as particularly important as a threat, as it can replicate NVIDIA’s capability of being in multiple clouds and giving CSPs the ability to avoid vendor lock in.

Moore’s research note on AMD shares arrive more than a month after the chipmaker reported its financial results for the first quarter that topped Street estimates. The Nasdaq-listed firm did, however, issue somewhat of a muted guidance at the time (read more).

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