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Updated at 9:53 AM 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.
Advanced Micro Devices (AMD) , which is currently running a distant second to Nvidia (NVDA) in the global for AI-powering chips and processors, 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 behind its AI-focused data center segment, with CEO Rene Haas forecasting 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."