Today's notable drop in shares can be attributed to Advanced Micro Devices.
Today's notable drop in shares can be attributed to Advanced Micro Devices.
Shares of tech firm Advanced Micro Devices (AMD) decreased by 5.4% during Monday's trading session, as of 2 p.m. Eastern Time.
The technology sector took a hit today, following an analyst's negative review from a major Wall Street firm. This downgrade capped off a challenging few trading days for the company, which has high hopes in the field of artificial intelligence (AI).
Bank of America downgrades
Analyst Vivek Arya from Bank of America altered his stance on AMD, changing it from 'buy' to 'neutral'. He also lowered his target price from $180 to $155.
The timing of this downgrade was also noteworthy. On Friday, AMD's stock suffered losses subsequentially to a statement from an executive at Amazon Web Services (AWS). The executive mentioned that AWS, the world's largest cloud platform, is "not yet seeing" demand for AMD's MI300 series of AI GPUs.
AMD had aspired to make its mark in the booming AI market, but this quote suggests that major cloud platforms either prefer Nvidia's most advanced chips or are creating lower-cost in-house training chips. Just last week, Amazon announced that its Trainium2 chips were available and was planning to construct a "supercluster" with the said Trainium chips for external customers and AI startup Anthropic, in which Amazon has invested.
It appears that BofA sees the increased production of low-cost in-house chips by all cloud providers, along with Nvidia's upcoming Blackwell chip, as potential obstacles for AMD in AI. Additionally, Arya pointed out that some experts have projected a decline in PC demand during the first half of 2025, which could further affect AMD's financial results.
AMD's vulnerability
AMD has enjoyed a strong position in the stock market for several years, but this popularity has significantly increased its valuation. Its stock now holds a PE ratio of 122 times earnings and approximately 30 times projected earnings for the following year. With such high expectations, it's unsurprising to see the stock react negatively to today's downgrade.
In light of this downgrade, investors might reconsider their financing decisions related to AMD, potentially leading to a shift in investing strategies. Moreover, the analyst's lower target price suggests a potential decrease in anticipated returns from investing in AMD's shares.