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Updated at 8:23 a.m. EST
Advanced Micro Devices shares moved lower again Friday following a price target and ratings change from a top Wall Street analyst tied in part to a new challenge for the AI-chip maker heading into 2025.
While currently running a distant second to Nvidia (NVDA) in the global for AI-powering chips and processors, AMD is also seeing a new and accelerating challenge in the market for personal computers and servers.
Softbank-owned Arm Holdings, (ARM) which went public in late 2023 with a $5 billion IPO that valued the group at around $55 billion, collects licensing fees from its chip designs and further royalties from individual sales.
It's also taking a larger piece of the global PC market, a secondary division for AMD (AMD) behind its AI-focused data center segment. Arm CEO Rene Haas predicts a commanding 50% share of the Windows PC market in 2029.
Goldman Sachs analyst Toshiya Hari noted the group's recent advances in a note that lowered both its rating and price target for AMD heading into its fourth-quarter earnings report later this month.
AMD share price underperformance
Having added the stock to his buy list in November 2020, Hari noted that the shares have underperformed the S&P 500 over that time, rising 50% compared with the benchmark's 72% gain.
The shares have seen recent weakness as well, falling more than 33% over the past six months, south of the 9.4% decline for the PHLX Semiconductor Sector benchmark. AMD shares have shed around $65 billion in value since the company issued a disappointing sales and profit outlook in late October.
Related: Analyst overhauls AMD stock price target as gap with Nvidia widens
"Although we remain constructive on AMD's ability to take share from Intel INTC in x86-based compute across PCs and traditional servers, we are increasingly concerned [over] the rise of Arm-based custom CPUs and heightened competition in accelerated computing," Hari and his team wrote.
Hari said Arm's rise would weigh on AMD's revenue-growth prospects, add to operating expenses and pressure the stock's price-to-earnings multiple.
He downgraded AMD stock to neutral from buy and lowered his price target on the group by $46 to $129 a share.
AMD needs to regain market confidence
"We believe this underperformance stems from weakness in PC and traditional end-demand, as well as slower-than-expected growth in data center GPUs," Hari said. "We now expect the stock to remain range-bound until the market regains confidence in AMD's future growth and margin trajectory."