Sell AMD as Bumpy AI Roadmap and Increased Competition Suggest Further Downside, HSBC Warns

The dual-GPU market won't make Advanced Micro Devices (AMD) better off, as the stock has further downside due to a bumpy AI prospect ahead, according to HSBC.

The bank's analysts, led by Frank Lee, on Wednesday downgraded AMD to Reduce from Buy and lowered their price target to $110 from $200, implying a 14% downside from Tuesday's close. 

The stock dropped nearly 3% in the premarket as the CPU and GPU maker experienced an 18% decline in 2024.

Frank Lee noted that increased competition in the AI GPU market from companies like Nvidia, Marvell, and Broadcom will put pressure on AMD, even after its shares have already dropped 26% over the past three months.

We see additional downside as we now believe its AI GPU roadmap is less competitive than we previously thought. Hence, we believe AMD wouldn't be able to penetrate the AI GPU market as much as we had earlier anticipated, Lee said.

HSBC has lowered its forecast for AMD's AI GPU revenue in fiscal 2025 (FY25) from $12.3 billion to $8.1 billion, which is significantly below the consensus estimate of $9.5 billion. The analysts believe AMD's new MI325 GPU is facing lukewarm demand and may be hindered by Samsung's struggles in ramping up higher-spec HBM3e memory.

Additionally, HSBC expects AMD to launch its MI350 chip in the second half of 2025, but believes the company is unlikely to introduce an AI rack solution capable of competing with Nvidia's NVL rack platform until late 2025 or early 2026, coinciding with the anticipated launch of the MI400.

HSBC's downgrade also reflects concerns over AMD's client momentum and limited upside for non-AI data center revenue in FY25. The firm expects AMD's client revenue to grow by 12% year-over-year in FY25, a significant deceleration from the 44% growth forecasted in FY24.

Furthermore, HSBC has lowered its traditional data center server revenue estimate for AMD by 5%, citing muted overall server industry growth, despite the company's expected continued market share gains in server CPUs.

With these factors in mind, HSBC has revised its 2025 EPS estimate for AMD to $4.71, a 28% reduction from previous estimates and 6% lower than the consensus. The new price target of $110 is based on a lower 2025 target price-to-earnings ratio of 23x, down from 30x, reflecting the anticipated slower AI GPU revenue growth and potential further downside to analyst estimates.