Bank of America analyst Vivek Arya warned of potential market share losses as he downgraded shares of Advanced Micro Devices Inc (NASDAQ: AMD) on Monday.
He now has a “neutral” rating on AMD stock.
The multinational chipmaker is broadly seen as a notable beneficiary of artificial intelligence.
But Arya is not entirely convinced that it’s well-positioned to capitalise on the AI tailwinds.
AMD shares are currently down about 35% versus their year-to-date high.
AMD stock faces higher competitive risks
Vivek Arya downgraded AMD shares this morning due to “higher competitive risks.”
The Nasdaq-listed firm will likely find it increasingly difficult to gain share in the AI space against the “best-of-breed NVDA’s dominance,” he added.
BofA’s Arya now expects AI chips to generate up to $8 billion in revenue for Advanced Micro Devices in 2025. His previous forecast called for up to $8.9 billion instead.
His estimate implies the California-based company will only maintain its current market share of about 4.0% in the coming year. AMD stock remains unattractive for income investors as well since it doesn’t currently pay a dividend.
Custom AI chips could weigh on AMD shares
The Bank of America Securities leaned a bit more towards a dovish view on Advanced Micro Devices today also because cloud customers have already started indicating a preference for custom chips.
Amazon, the largest cloud customer, for example, continues to favour Nvidia products and custom chips (Trainium/MRVL) over AMD’s offerings.
AMD has so far been able to win business from other hyperscalers like Meta Platforms, Microsoft, and Oracle, but “their capex requirements for NVDA’s premium Blackwell could also limit share gain opportunity for AMD’s MI products,” Vivek Arya told clients in a research note on Monday.
The analyst expects AMD’s share in AI accelerators to remain capped at about 5.0% over the long term. Custom chips will own between 10% and 15% of that market while Nvidia will continue to dominate with an over 80% share, he added.
AMD is growing slowly as an AI beneficiary
AMD stock has struggled over the past month after reporting in-line earnings for its third financial quarter.
The chipmaker doubled its data centre sales in Q3 but issued current-quarter guidance that only matched the consensus estimate for overall revenue.
Advanced Micro Devices expects its sales figure to print at about $7.5 billion in the fourth quarter which translates to a 22% annualised growth. That’s much lower than what other AI names like Nvidia are projecting for the future.
Nonetheless, “customer and partner interest for MI325X is high. Production shipments are planned to start this quarter,” the company chief executive, Lisa Su, told analysts on the earnings call.
AMD launched the M325X accelerator in October to take on Nvidia’s Blackwell.
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