Advanced Micro Devices (AMD) experienced another decline in share value following a significant adjustment in rating and price target by a prominent Goldman Sachs analyst, reflecting growing concerns about the company’s position in the artificial intelligence chip market as it enters 2025.
While AMD maintains its position as the second-largest player in the AI chip sector behind Nvidia, the company faces mounting challenges in its personal computer and server segments. A particular threat comes from Arm Holdings, the Softbank-controlled chip design firm that completed a $5 billion initial public offering in late 2023, achieving a market valuation of approximately $55 billion.
Arm Holdings, which generates revenue through licensing fees and royalties from its chip designs, is making substantial inroads into the global PC market – a secondary focus for AMD compared to its AI-centered data center operations. Arm’s CEO Rene Haas has projected an ambitious target of capturing 50% of the Windows PC market by 2029.
The impact on AMD has been substantial, with the company losing approximately $80 billion in market capitalization over a three-month period. Goldman Sachs analyst Toshiya Hari addressed these
developments in a revised analysis, resulting in downgrades to both the company’s rating and price target ahead of its upcoming
fourth-quarter earnings announcement.
The performance gap between AMD and broader market indices has become noteworthy. Since November 2020, when Hari initially recommended buying the stock, AMD shares have increased by 50%, significantly underperforming the S&P 500’s 72% gain during the same period. More recently, AMD’s stock has declined by more than 33% over six months, considerably worse than the 9.4% drop in the PHLX Semiconductor Sector index.
Hari expressed particular concern about the emergence of Arm-based custom CPUs and increased competition in accelerated computing, while acknowledging AMD’s ongoing ability to capture market share from Intel in traditional computing segments. These factors led to a downgrade of AMD’s stock from ‘buy’ to ‘neutral’ and a reduction in the price target by $46 to $129 per share.
Looking ahead to AMD’s January 28 earnings report, the company previously indicated that MI300 sales could exceed $5 billion in the current year, contributing to an overall revenue projection of $7.5 billion. Analysts anticipate earnings of $1.08 per share, with revenue distributions of $4.15 billion from data center operations, $1.95 billion from client services, and approximately $1.4 billion from gaming and embedded segments.
The mounting challenges facing AMD reflect broader shifts in the semiconductor industry, particularly in the AI chip market where competition continues to intensify. The company’s ability to maintain its market position while addressing new competitive threats from firms like Arm Holdings will likely be crucial for its performance in 2025.
Premarket trading showed AMD shares declining by 1.92%, pointing to an opening price of $119.50. The company’s immediate future appears to hinge on its ability to regain market confidence in its growth trajectory and margin performance, as highlighted in Hari’s analysis. The upcoming earnings report will be closely watched for indicators of AMD’s ability to execute its strategy in an increasingly competitive market landscape.