Bank Of America: “AMD Struggles to Define Its Competitive Edge Against NVIDIA and the Rising Role of Custom ASIC Chips in AI Silicon”

Please note that this content does not constitute investment advice, and the author holds no positions in any mentioned stocks.

AMD’s Recent Performance and Market Reaction

Recently, Wolfe Research made a prediction about AMD that is now garnering attention in the finance community. They suggested that AMD would struggle to effectively navigate the AI landscape by 2025. This lack of guidance played a significant role in the decline of AMD’s stock during after-hours trading following their earnings release. Consequently, the company’s uncertain outlook is a recurring theme in analysis from leading Wall Street experts.

Fourth Quarter Results Overview

In their latest earnings report, AMD exceeded both top- and bottom-line forecasts for Q4 2024, achieving an impressive $7.66 billion in revenue, surpassing the predictied figure of $7.53 billion. However, it’s important to note that the data center segment, crucial for AI-related applications, fell short of market expectations. This shortfall was overshadowed by robust performance in AMD’s client computing sector, which includes both PC and gaming solutions.

BofA Lowers $AMD PT to $135 from $155, Maintains Neutral Rating

“Reiterate Neutral as AMD has not (yet) managed to articulate how it can carve an important niche versus NVDA’s dominance and custom ASIC chip’s growing importance in AI silicon, with any upside surprise largely…

— Wall St Engine (@wallstengine) February 5, 2025

Analyst Insights on AMD’s Q1 2025 Guidance

In a typical post-earnings analysis, Bank of America’s Vivek Arya commented that AMD’s Q1 2025 guidance is “modestly better, ”largely due to the robustness of its client-focused PC and gaming divisions. This stands in stark contrast to Intel’s guidance, which has been hampered by significant short-term customer pull-ins attributed to tariffs.

Notably, BofA has adjusted its expectations for AMD’s AI GPU revenue in 2025 down to $7.5 billion, a reduction of approximately $0.5 billion from previous models. Arya highlighted that, although AMD refrained from providing explicit guidance for the upcoming year, they anticipate that the first half of 2025 will exhibit flat revenue performance compared to the previous half, with stronger growth anticipated later in the year due to the ramp-up of the MI350 product.

“AMD did not guide AI GPU for the year, but just said it expects 1H25 to be flat HoH, with stronger 2H on the back of its new MI350 ramp.”

Market Analysts’ Ratings and Perspectives

Following these events, Bank of America lowered its price target for AMD shares from $155 to $135, citing concerns over AMD’s ability to define a competitive edge in the increasingly crowded AI market dominated by NVIDIA and the rising importance of custom ASIC chips.

“… AMD has not (yet) managed to articulate how it can carve an important niche versus NVDA’s dominance and custom ASIC chip’s growing importance in AI silicon, with any upside surprise largely dependent on share gains against INTC in more mature markets.”

Meanwhile, KeyBanc’s John Vinh downplayed the setbacks in AMD’s data center practices, focusing instead on anticipated market share improvements in the AI GPU domain as the rationale for his continued ‘overweight’ rating of AMD stocks. He suggested that significant growth in data center GPU revenue—exceeding $5 billion in 2024—would continue, with an expectation of double-digit growth for 2025, even amidst a lack of explicit guidance from AMD.

“Data Center GPUs revenues exceeded $5B in 2024, but AMD would not provide explicit guidance for 2025, [instead merely] indicating Data Center, including GPUs, would grow strong double digits this year. Additionally, with the ramp of MI355 expected midyear, Data Center growth is expected to be second-half weighted, as first-half 2025 Data Center revenues are expected to be equal to second-half 2024.”

Outlook from Barclays

In contrast, Barclays remains steadfastly optimistic, reaffirming an ‘overweight’ rating on AMD with a price target set at $140. They acknowledge the slower than expected performance of MI300 within the Server CPU market, which has brought about some caution for Q1. However, Barclays’ Tom O’Malley emphasized the potential for substantial year-over-year revenue growth.

“The company also pointed to ’10s of billions’ in the next several years.”

Highlighting the company’s proactive approach, O’Malley noted that AMD is navigating through significant product transitions and plans to introduce the MI350 (CDNA 4) by mid-2025, with subsequent innovations to follow.

“On the positive side, the company is moving through AI product transitions faster and plans to pull MI350 (CDNA 4) into mid-2025, then introduce a new compute (CDNA next) and rack-level architecture with MI400 several quarters later.”

In conclusion, analysts believe that the current dip in AMD’s stock presents a potential buying opportunity, emphasizing the company’s history of delivering on its growth promises.

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