Advanced Micro Devices (AMD) is facing concerns over the sustainability of its China artificial intelligence business, KeyBanc said in a research note emailed Tuesday.

"While NT demand trends are driving increased demand for the MI308 from Chinese hyperscalers, we are increasingly concerned whether this is sustainable given concerns that further export restrictions will be levied by the US," KeyBanc said in the note.

KeyBanc also said that it sees "increasing risk" to the company's gross margin due to a potential price war with Intel (INTC) as well as limited opportunities to capture a bigger market share against Intel, whose progress on its 18A semiconductor manufacturing technology is expected to close the competitive gap with AMD in the server and PC segments.

The investment firm added that while AMD's stock, trading at 13 times KeyBanc's 2026 EPS estimate, is "relatively inexpensive," stocks in the semiconductor sector "rarely work with risk to GMs, which we are increasingly concerned about given the aggressive price cuts by [Intel]."

The investment firm downgraded AMD to sector weight from overweight.

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