On Thursday, BofA Securities adjusted its stance on Advanced Micro Devices, Inc. (NASDAQ:AMD), shifting from a "Buy" to a "Neutral" rating. The firm also revised the price target for AMD's shares to $155 from the previous target of $180. The adjustment comes amid concerns about increased competition in the artificial intelligence (AI) sector and potential corrections in PC processor sales.
The downgrade has contributed to AMD's recent market pressure, with InvestingPro data showing a 7.93% decline in the past week. Analyst targets currently range from $146 to $250, reflecting mixed sentiment about the company's prospects.
The analysis by BofA Securities suggests that AMD faces heightened competitive risks, particularly from NVIDIA (NASDAQ:NVDA)'s dominance in the AI space. Additionally, the growing trend of cloud companies preferring custom chips from manufacturers like Marvell (NASDAQ:MRVL) Technology Group and Broadcom (NASDAQ:AVGO) Inc. could impede AMD's market share growth.
These factors have led to a reduction in the forecasted earnings per share for the fiscal years 2025 and 2026, with projections now 13% and 23% below the consensus, respectively. Despite these challenges, InvestingPro data shows AMD maintains strong financial health with a current ratio of 2.5 and moderate debt levels. The company's revenue grew 9.88% in the last twelve months, demonstrating resilience in a competitive market.
AMD's projected earnings per share have been lowered to $4.43 for the fiscal year 2025 and $5.51 for 2026, a decrease from the consensus estimates of $5.09 and $7.11.
The anticipation of a potential correction in the first half of the fiscal year 2025 for PC processors is another contributing factor to the downgrade. This potential downturn is expected following an approximate 40% half-over-half surge in AMD's client PC sales in the second half of the fiscal year 2024.
Despite these challenges, BofA Securities acknowledges AMD's strong track record of execution and the company's ability to benefit from the ongoing difficulties faced by its competitor Intel Corporation (NASDAQ:INTC). AMD's involvement in the rapidly expanding AI market is also seen as a positive element that could support a 15-20% revenue growth trajectory.
The new price objective of $155 is based on a 28 times multiple of AMD's expected earnings for the fiscal year 2026, which aligns with the valuation multiples of its peers. This is a change from the prior price objective, which was based on a 38 times multiple of the company's expected fiscal year 2025 earnings.
According to InvestingPro analysis, AMD is currently trading near its Fair Value, with a P/E ratio of 115.88. For deeper insights into AMD's valuation and 14+ additional ProTips, including detailed financial health scores and comprehensive research reports, investors can access the full analysis on InvestingPro.
In other recent news, Advanced Micro Devices (AMD) has been making significant strides in various market sectors. The company's CFO, Jean Hu, highlighted AMD's market share growth in the server CPU market, reaching 34% in the last quarter, attributing this to the company's consistent focus on product innovation. In addition, AMD's market share in the PC market has reached 27% for desktops and 19% for mobile.
Despite these gains, Hu acknowledged that AMD is underrepresented in the enterprise server market compared to its cloud market presence.
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