By Mackenzie Tatananni

Advanced Micro Devices may be losing its competitive edge, Wolfe Research analyst Chris Caso argued as he downgraded shares of the chip maker from Buy to Peer Perform.

While shares of semiconductor manufacturers -- including Nvidia, Marvell Technology, and Applied Materials -- got a lift when Taiwan Semiconductor Manufacturing reported earnings on Thursday, AMD did not. The stock was down 0.1% to $119.83 in morning trading.

Also on Thursday, Caso trimmed his rating on AMD shares and removed his $210 price target. The analyst said the decision stemmed from lower expectations for data-center GPU revenue than previously anticipated.

Graphics processing units, or GPUs, are the chips that power artificial intelligence. These electronic circuits accelerate the calculations required for training machine learning models.

AI accelerators are a staple of AMD's product line, but Caso argues that the company's data-center GPU business is "running below expectations."

Wolfe Research slashed its first-quarter revenue and earnings estimates to $6.6 billion and 80 cents a share, respectively, down from earlier projections of $7.04 billion in revenue and 93 cents a share in earnings. The adjusted figures fall below Wall Street's expectation for $7.04 billion and 95 cents a share.

The firm also lowered its full-year estimates to $29.9 billion and $4.19 a share versus an earlier $33.6 billion and $5.33 a share and consensus estimates of $32.3 billion and $5.02 a share.

Other challenges include slow personal-computer seasonality coming off a strong fourth quarter and continued weakness in gaming revenue, Caso said.

There is a silver lining, however. Caso noted that AMD's upcoming MI350 chip series should serve as a "catalyst" when it launches in the second half of the year.

The MI350 is expected to be a "more significant" redesign and upgrade than the latest MI325, which mostly increased memory loading, Caso said.

Dell Technologies recently announced that it would be using AMC processors in computers aimed at corporate customers for the first time, "which could represent future share gains in the client market," Caso added. Dell previously limited its use of AMD chips to consumer PCs.

AMD caught downgrades from Goldman Sachs and HSBC earlier this month. Goldman analysts cut their rating to Neutral from Buy, citing modest growth for data center GPUs amid stiff competition, while the team at HSBC downgraded AMD to Reduce from Buy over fears that the stock could drop further following a three-month decline.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com

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January 16, 2025 12:08 ET (17:08 GMT)

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