Morgan Stanley downgrades AMD stock amid high AI expectations, competitive pressures

EditorEmilio Ghigini
Published 10/06/2024, 09:36

On Monday, Morgan Stanley adjusted its stance on Advanced Micro Devices (NASDAQ:AMD) stock, downgrading from Overweight to Equalweight and setting a price target of $176.

The firm's assessment comes amid concerns over the high expectations surrounding the company's performance in artificial intelligence (AI).

The investment bank acknowledged AMD's strong positioning in its core markets but expressed caution over the company's valuation. According to the firm, the anticipation built around AI capabilities might not be fully justified, suggesting that AMD's stock price already reflects an optimistic outlook.

AMD's recent stock rally post its quarterly earnings report seems to have influenced Morgan Stanley's decision. The firm indicates that as AMD's share price approaches the newly established price target, it advises a more measured approach to the stock.

The analysis further highlights the competitive landscape, specifically the potential impact of Nvidia (NASDAQ:NVDA)'s Blackwell launch on its rivals in the AI space. With these factors in mind, Morgan Stanley suggests Broadcom Inc. (NASDAQ:AVGO) as a preferred alternative within the large-cap AI segment.

Morgan Stanley's revised outlook for AMD comes after careful observation of market expectations and the company's strategic position relative to its competitors in the evolving AI industry.

In other recent news, Advanced Micro Devices (AMD) continues to make strides in the artificial intelligence (AI) sector, with TD Cowen maintaining a Buy rating and a $200.00 target price.

The company's strategy to match NVIDIA's aggressive roadmap was highlighted, with AMD's presentations at industry events focusing on open compute platforms for AI across various domains.

Meanwhile, Intel Corp (NASDAQ:INTC) unveiled its latest generation of Xeon server processors, aimed at regaining data center market share lost to AMD. The launch includes the Gaudi 3 AI accelerator chips, priced significantly lower than competitors.

CFRA also maintained a Buy rating on AMD, following detailed updates on its AI hardware capabilities. The company announced an annual release cycle for its AI accelerators, mirroring competitor NVIDIA's strategy.

With the Instinct MI325X accelerator set to be available in Q4, AMD's CPU offerings, including the Turin EPYC CPUs, are anticipated to hit the market in the second half of 2024.

In other company news, AMD CEO Lisa Su revealed the MI325X accelerator at the Computex technology trade show in Taipei. This is part of AMD's ambitious agenda to meet the demand for advanced chips capable of supporting complex AI applications in data centers.

The company also introduced the MI350 series, slated for release in 2025, and the MI400 series for 2026. These recent developments reflect AMD's determination to capture market share from AI semiconductor market leader, NVIDIA.

InvestingPro Insights

As Advanced Micro Devices (AMD) navigates the competitive AI landscape, real-time data from InvestingPro provides a deeper dive into the company's financial health and market performance. AMD's market capitalization stands at a robust $271.33 billion, reflecting its significant presence in the market. Despite a slight revenue decline of 1.16% over the last twelve months as of Q1 2024, AMD maintains a high gross profit margin of 50.56%, underscoring its ability to retain earnings relative to revenue.

InvestingPro Tips highlight the company's expected net income growth this year, coupled with its status as a prominent player in the Semiconductors & Semiconductor Equipment industry. However, analysts have noted concerns, with 20 of them revising their earnings estimates downwards for the upcoming period. Additionally, AMD's trading at a high earnings multiple, with a P/E ratio of 241.69, suggests a premium valuation relative to near-term earnings growth. For investors seeking a more comprehensive analysis, there are additional InvestingPro Tips available, which can be accessed with a special offer: use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

Investors considering AMD's stock should weigh these metrics and tips carefully, particularly in light of Morgan Stanley's recent adjustment of its position on AMD shares. The company's performance in the AI segment, along with its financial ratios and market sentiment, will be key factors in assessing its future trajectory.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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