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Advanced Micro Devices Inc. (NASDAQ:AMD) shares experienced a significant surge in 2023, driven by the increasing demand for graphics processing units (GPUs) used in artificial intelligence (AI) applications. However, the stock’s future trajectory has now been thrown into uncertainty as an analyst downgraded AMD’s rating to a rather unconventional status.
What Happened: The Northland Capital Markets analyst Gus Richard downgraded AMD’s rating to a “heck if we know” status, citing the uncertainty surrounding the future of the company’s AI-oriented GPUs, CNBC reported on Monday. This downgrade comes after AMD’s stock rose by nearly 130% in 2023, with investors banking on the company’s AI-oriented GPUs to rival those of Nvidia Corp. (NASDAQ:NVDA) and attract major buyers like Microsoft Corp. (NASDAQ:MSFT) and Meta Platforms Inc. (NASDAQ:FB).
Richard’s decision is based on the “irrational exuberance” surrounding the growth of AI chip demand, which has led to inflated expectations. He predicts a total AI chip revenue of $125 billion in 2027, with some analysts estimating it to be as high as $400 billion. However, Richard believes that the actual figure will be significantly lower.
“AI is big, it’s really big, just not as big as investors are thinking,” he said.
He also points out that the demand signals are distorted due to Nvidia’s dominant position in the market and the recent U.S. ban on certain chip exports to China, which could hinder growth.
Why It Matters: The AI chip market has been a hot topic in the tech industry, with analysts predicting its potential to drive growth for companies like AMD and Nvidia. Just recently, an analyst at KeyBanc Capital Markets suggested that AI could save the day for semiconductor companies amidst weak industry fundamentals in the fourth quarter.
Despite the uncertainty surrounding AI chip growth, AMD’s stock had risen, reaching a new all-time high just a few days before the recent downgrade. The company’s AI-oriented GPUs were seen as a potential game-changer in the market, but Richard’s call has now cast doubt on the future of this segment.
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