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AI highflier nosedives as analyst warns of 'irrational' hype

AInvestTuesday, Jan 23, 2024 1:48 am ET
1min read

Artificial Intelligence chipmakers Advanced Micro Devices and NVIDIA saw their shares hit record highs to kick off 2024. But after an initial surge, AMD and other chipmakers retreated in a volatile session on Monday.

AMD

Advanced Micro Devices, better known as AMD, saw its stock spike roughly 27% at Fridays close as investors are betting that the companys AI-specific GPUs scheduled to ship this year will grasp market shares from AI chip leader NVIDIA. But after the opening bell rang on Monday, AMD nosedived as much as 5.8% in the session. AMD rose nearly 130% in 2023.

Elevated expectations for AI chip growth have led analysts to maintain rational and pour cold water on the hype.

Northland Capital Markets analyst Gus Richard downgraded AMD stock to market perform, or neutral, from outperform or buy. In a client note, he said investors were overestimating AI chip sales for AMD.

The stock market is experiencing irrational exuberance over AI, Richard said. He predicts total AI chip revenue of $125 billion in 2027 and says the range of expectations is so great that some analysts are estimating $100 billion and others are at $400 billion.

Richard warned in the note, AI is big, its really big, just not as big as investors are thinking.

In Richards calculation, If AMD were to sell $16 billion in AI chips in 2027 — doubling every year from $2 billion in 2024 — the company would have about a 13% market share and would continue to spend more on research and development to keep up with NVIDIA. He sees $45 billion in total 2027 revenue for AMD and says that figure is already priced into the stock.

We downgrade on valuation to a heck if we know rating, Richard wrote in a note on Monday. He said he has an actual rating of market performance, which is equivalent to a hold.

His judgment has not scared that many investors away as they kept wary of the report. AMD pared losses to 3.5% at Mondays close. $AMD(AMD)

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