Advanced Micro Devices (AMD) stock (NASDAQ:AMD) has experienced an 11% decline over the past week and is down approximately 25% since the start of 2024. In comparison, the S&P 500 has increased by about 22% during the same period, while rival Nvidia (NASDAQ:NVDA) has surged over 160%.
AMD stock plummets 11% as Nvidia surges over 160%
The recent sell-off is attributed to several factors, including a downgrade from “buy” to “neutral” by Goldman Sachs analysts and lowered estimates from KeyBanc Capital Markets and HSBC. Concerns over increasing competition in the GPU market, particularly from Nvidia’s advanced chips and other new entrants in the AI sector, have added to the negative sentiment. Although AMD has been gaining market share from Intel in the CPU space for PCs and servers, there are worries that the overall market may be slowing down. According to IDC data, PC sales rose by just 1.8% year-over-year in Q4 2024 and by 1% throughout 2024.
AMD is introducing new MI350 chips aimed at enhancing its competitive edge. The company has shifted focus from gaming and design GPUs to chips for large language model training and inference in generative AI. Demand for AMD’s MI325 graphics processing units has been described as soft. However, AMD is concentrating on areas with potential for market share capture. The MI350 GPU series, set to launch in late 2025, is projected to deliver 35 times better inference performance than its predecessor, the CDNA 3.
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The AI market is expected to gradually transition from model training to inferencing, which requires less computational intensity. This shift could favor AMD’s AI processors. MLCommons, a testing organization, has noted that AMD’s MI300X is competitive with Nvidia’s H100 GPU in AI inference benchmarks, leading to significant orders from hyperscalers. IBM is set to feature AMD’s MI300X in its cloud services during the first half of 2025, while Oracle has opted for AMD’s accelerated computing chips for its new AI supercluster due to strong performance at competitive pricing.
AMD holds a unique position in the tech industry by leveraging its expertise in both CPUs and GPUs, allowing it to integrate capabilities for efficient processing and accelerated computing tasks, which may provide an advantage in the evolving computer hardware landscape.
The stock’s performance over the last four years has been volatile, with annual returns of 57% in 2021, -55% in 2022, 128% in 2023, and -18% in 2024. The Trefis High Quality (HQ) Portfolio has delivered steadier returns, outperforming the S&P 500, highlighting a difference in volatility and returns. Given concerns about the macroeconomic environment and previous struggles in 2022 and 2024, there is uncertainty regarding AMD’s ability to outperform the S&P over the next 12 months.
Despite challenges, analysts maintain a positive outlook for AMD, with a price estimate of around $160 per share, approximately 35% higher than the current market price. The stock is trading at about 23 times the consensus 2025 earnings, considered reasonable relative to AMD’s projected 26% revenue growth for that year.
In 2024, AMD shares fell by 18% despite growth opportunities as a prospective AI chip maker, struggling to meet investor expectations. AMD’s growth has lagged behind Nvidia’s. For AMD to recover, its AI chips need to demonstrate competitiveness against Nvidia’s offerings, necessitating a significant improvement in growth rates.
AMD’s price-to-earnings ratio is improving but still trails Nvidia’s much lower multiples. Both companies are considered promising investments, but AMD must convince investors that its AI solutions can compete effectively with Nvidia’s established leadership in the market. AMD has significant potential in mature markets, but its future performance may depend on the success of its AI processors. AMD’s AI-market share remains considerably lower than Nvidia’s, with Nvidia holding a 90% share compared to AMD’s 10%.
AMD reported its Q3 results in October 2024, meeting earnings expectations but falling short in terms of revenue outlook for Q4, estimating $7.5 billion against a $7.55 billion analyst consensus. The company may face challenges in meeting the increasing demand for AI processors, with CEO Lisa Su indicating tight chip supplies in 2025. Analysts have expressed concerns that AMD may struggle to meet Wall Street’s estimates for 2025, which range between $8 billion and $9 billion.
AMD is scheduled to disclose its Q4 and full-year 2024 financial results on February 4, following the market’s closing bell.
Disclaimer: The content of this article is for informational purposes only and should not be construed as investment advice. We do not endorse any specific investment strategies or make recommendations regarding the purchase or sale of any securities.
Featured image credit: Kerem Gülen/Ideogram
