Bank of America Downgrades AMD to Neutral

Bank of America downgraded Advanced Micro Devices (NASDAQ:AMD) from Buy to Neutral in a research note on Monday, identifying downside risks to its 2025 outlook.

Price Target Adjustments

The firm lowered its price target for AMD to $155 from $180 and reduced its 2025/26 EPS estimates by 6% and 8%, respectively, reflecting a 13-23% gap compared to consensus estimates.

Reasons for Caution

Two primary factors have contributed to BofA’s cautious outlook on AMD:

1. Competitive Pressures in AI
   BofA indicated that competitive pressures in AI from NVIDIA (NASDAQ:NVDA) and custom chip providers like Marvell (NASDAQ:MRVL) and Broadcom (NASDAQ:AVGO) could limit AMD’s market share gains. The bank noted that the largest cloud customer, Amazon (NASDAQ:AMZN), has expressed a preference for alternative custom chips (like Trainium or products from Marvin) over AMD products, and other major players like Google (NASDAQ:GOOGL) are displaying similar tendencies. They forecast that AMD will capture only 4% of the $200 billion AI accelerator market by 2025, while NVIDIA is expected to dominate with more than 80%.

2. Potential Correction in the PC Processor Market
   Following a significant 40% surge in AMD’s client PC sales during late 2024, BofA is concerned about a possible slowdown in the first half of 2025, which could challenge AMD’s growth momentum.

Acknowledgments

Despite these challenges, BofA noted AMD's consistent execution and the potential to take advantage of Intel’s restructuring struggles, which may allow it to expand its presence in the PC and server CPU markets. The note highlighted AMD’s strong ties with companies like Microsoft (NASDAQ:MSFT), Meta (NASDAQ:META), and Oracle (NYSE:ORCL) as positives. However, it also mentioned there are limited opportunities for AMD to exceed market estimates in the AI sector.

In conclusion, while AMD is well-positioned in the compute market, BofA believes that expectations for 2025 could temper enthusiasm, leading to its downgrade.