Goldman Sachs Joins Barclays in Downgrading AMD: “Stock Expected to Stay Range-Bound Until Market Regains Confidence in Growth and Margins”

The following insights do not constitute investment advice. The author does not hold any positions in the stocks mentioned in this article.

Wall Street’s Growing Concerns for AMD

There is a noticeable shift in sentiment regarding Advanced Micro Devices (AMD) on Wall Street, evolving from initial skepticism to a more widespread cautious outlook. This change is largely driven by intensifying competition from Arm-based processors and a slower-than-expected growth trajectory for AMD’s data center GPUs.

Goldman Sachs Downgrades $AMD to Neutral from Buy, Lowers PT to $129 from $175

Analyst comments: “Although we remain constructive on AMD’s ability to take share from Intel in x86-based compute across PCs and traditional servers, we are increasingly concerned that the rise of…

— Wall St Engine (@wallstengine) January 10, 2025

Goldman Sachs Takes a Cautious Stance

In a recent analysis, Goldman Sachs analyst Toshiya Hari expressed considerable caution regarding AMD’s short-term outlook. Despite maintaining a positive view on AMD’s potential to capture market share from Intel in x86-based computing for PCs and traditional servers, Hari noted growing concerns over the impact of Arm-based custom CPUs on AMD’s stock valuation and revenue growth.

Specifically, these Arm-based competitors may depress AMD’s stock multiple and lead to increased operating expenses, adding to investor uncertainty. As an illustration of AMD’s struggles, since being included on Goldman Sachs’ Buy List on November 4, 2020, the stock has risen only about 50%, lagging behind the S&P 500’s 72% growth during the same period.

Challenges in Growth and Revenue

Hari attributed this underperformance to diminishing demand in both PC sectors and slower-than-anticipated growth in AMD’s Data Center GPU segment. He elaborated:

“We now expect the stock to remain range-bound until the market regains confidence in AMD’s future growth and margin trajectory.”

Downgrades and Price Target Adjustments

Accordingly, Goldman Sachs has downgraded AMD’s stock rating to neutral, reducing the price target from $175 to $129, reflecting limited potential for future growth relative to the current stock price. This downgrade follows closely behind a similar action taken by HSBC, which recently cut its price target for AMD shares by 45% from $200 to $110.

HSBC cites a less competitive AI GPU roadmap for AMD as a significant limiting factor for the company’s growth in the burgeoning AI GPU market. Meanwhile, Wolfe Research has indicated that AMD may not be in a position to lead the AI segment in 2025, which could further erode investor confidence.

Additionally, Bank of America has pointed out the increasing threat posed by Arm-based vendors in the CPU market. The adoption of Arm-based server CPUs surged to 7% in Q3 2024, compared to less than 5% in 2023 and around 1% in 2022, signaling a potential shift in market dynamics that could adversely impact AMD’s CPU shares.

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