Advanced Micro Devices stock dropped 5.6% on Monday to $130.87 after BofA Securities downgraded shares of the chip maker, citing concerns over competition and the personal computer market.
Vivek Arya downgraded shares of AMD to Neutral from Buy and cut his price target to $155 from $180.
Arya wrote in a research note on Monday that there were two main reasons for this downgrade. The first reason was that in the market for chips for artificial intelligence, AMD has been competing with Nvidia, the dominant player in that area. That isn't an easy race to win.
Nvidia is the most talked about AI stock on Wall Street because demand for its graphics processing units is red-hot. It's got a market capitalization of $3.5 trillion, compared with AMD's $224.9 billion. And in the most recent quarter, Nvidia posted revenue of $35.1 billion, compared with AMD's $6.8 billion.
"Recently largest cloud customer Amazon strongly indicated its preference for alternative custom (Trainium/ MRVL) and NVDA products, but a lack of strong demand for AMD," Arya wrote. "Separately Google continues to prefer internal (TPU/ AVGO) and NVDA."
AMD didn't immediately respond to a request for comment.
Arya added that AMD does have a strong presence at Microsoft, Meta Platforms, and Oracle, but said those companies' plans to spend heavily on Nvidia's new Blackwell chip could limit the opportunities for AMD.
Arya's second concern is the potential for a drop in demand for PC processors in the first half of 2025.
On the company's third-quarter earnings call in October, Chief Executive Lisa Su said that "revenue increased 18% year-over-year to a record $6.8 billion as significantly higher data center and client processor sales more than offset declines in Gaming and Embedded product sales."
Arya's concern is that the growth the company has seen with PC processors isn't sustainable. Still, the analyst wrote that he "continues to admire AMD's consistent execution, benefits from rival INTC's ongoing turmoil, and AMD's participation in fast-growing AI market that can help sustain a 15-20% topline growth trajectory."
Shares of AMD have dropped 9.1% this year compared with the 31% jump in the tech-heavy Nasdaq Composite.
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