Advanced Micro Devices' (AMD) overall Q4 results were about in line, however, the main issue remains the lack of growth in datacenter revenue, Morgan Stanley said in a note Wednesday.

The analysts said that in the Q3 earnings call, the company suggested datacenter would be the largest contributor to quarter-over-quarter growth in Q4, but the client segment ended up being the bigger contributor. Even if all the growth versus the midpoint of guidance came from the client segment, both areas still contributed similarly to the quarter-over-quarter growth in December. They added that it is especially disappointing considering that datacenter revenue in H1 is expected to be similar to H2 2024, contrary to their more optimistic view that server business was improving toward the end of 2024.

"Our biggest concern has been expectations in artificial intelligence, which clearly have come down closer to our level; consensus numbers for calendar year 2025 are likely to come down to our level, and we are relatively optimistic around traditional servers as well as embedded, but AI visibility likely needs to improve for the stock to find its footing," the analysts said.

They added that while there may be a slowdown in the client segment at some point due to the strong 2024, it is clear that Advanced Micro Devices can continue to capture modest market share there. That being said, AI expectations still drive the stock's value, and they believe it's important to remain "conservative" for the 2025 calendar year, as the transition from the MI325 to MI350 models is not moving as quickly as Nvidia's shift from the H200 to Blackwell models.

Morgan Stanley adjusted its price target on Advanced Micro Devices to $137 from $147 while keeping its equalweight rating.

Shares fell by nearly 9% in recent trading activity.

Price: 108.23, Change: -11.27, Percent Change: -9.43