Advanced Micro Devices (AMD), long viewed as a rising competitor in the booming AI chip market, is facing fresh investor disappointment after a revenue forecast that fell short of expectations. On Wednesday, AMD shares plummeted by nearly 10% following its third-quarter earnings release, putting its AI-focused growth story into question as the company struggles to keep pace with industry giant Nvidia.
The semiconductor company had previously seen substantial growth, with its stock climbing roughly 156% since the end of 2022 amid strong demand for AI chips, a market ignited by advancements in generative AI technologies. However, the latest forecast left some investors wanting more, particularly in light of Nvidia’s commanding market share. The guidance for 2024 includes a $5 billion target for data-center AI chip revenue, but production issues could limit further growth, according to CEO Lisa Su.
“We expect supply to be tight going into next year,” Su said, hinting at challenges in scaling up production fast enough to meet demand.
While the outlook may appear solid on the surface, some analysts are concerned that it falls short of what’s needed for AMD to truly challenge Nvidia’s dominance. With Nvidia generating over $26 billion in data-center revenue last quarter alone, AMD’s recently launched MI325X chip, while promising, still has a long way to go to compete with Nvidia’s upcoming Blackwell hardware.
“AI still dominates the AMD story, but concerns are rising about the company’s ability to meet the $8 billion to $9 billion revenue estimates for 2025,” analysts at Jefferies noted.
The stock’s steep drop has not only wiped out recent gains but could strip nearly $25 billion from AMD’s market value if the losses persist. Despite these concerns, Wall Street remains divided on AMD’s future. At least ten analysts have reduced their price targets, while eight others raised theirs, setting a median target at $187.50—a potential upside of around 13% from AMD’s last closing price. Melius Research analyst Ben Reitzes, who maintains a $195 target, pointed out that AMD’s AI chip business has promising support from tech giants like Meta and clients in the Middle East.
The issues AMD faces go beyond its revenue forecast. The company relies on chip-manufacturing giant TSMC, as does Nvidia, but analysts have voiced fewer concerns about Nvidia’s supply chain. This discrepancy has fueled further skepticism among investors regarding AMD’s ability to keep up. Rival chipmakers Qualcomm and Arm also saw declines, but Nvidia remained relatively stable, suggesting that investors don’t expect Nvidia to face the same supply constraints as AMD.
For now, Wall Street analysts are urging patience, as AMD works to capitalize on the ongoing AI chip demand. Ruben Roy from Stifel advised that investors set Nvidia comparisons aside and appreciate AMD’s growth for what it is, stating, “We continue to expect strong follow-through on AI compute sales in 2025.” Roy maintains a $200 target on AMD’s stock, predicting momentum despite the “lumpiness” expected in customer demand.
As AMD continues to navigate these challenges, the company trades at a forward P/E ratio of 32, slightly lower than Nvidia’s 36. While AMD remains a popular choice for investors seeking to profit from the AI revolution, this recent dip highlights the difficult balancing act AMD faces in scaling production while satisfying heightened expectations from an AI-hungry market.