AMD: Don’t Catch A Falling Knife

Summary
  • AMD faces significant headwinds, including disappointing CES 2025 performance, slowing hyperscaler capex growth, and mega-cap tech companies developing their own chips, impacting AMD’s customer base.
  • AMD’s focus on AI CPUs is risky due to low workplace AI adoption and poor performance of Microsoft’s AI Co-Pilot, suggesting limited demand for AI PCs.
  • AMD is losing market share to Nvidia in GPUs due to a lack of backward compatibility in new software, and Broadcom is emerging as a strong competitor in AI chips.
  • Long-term growth prospects in AI and data centers face headwinds as tech companies produce their custom AI chips instead.
  • Valuation analysis indicates AMD’s fair value is around $96, with technical analysis suggesting a bearish trend, leading to a ‘Sell’ rating with a $96 price target.

Brief/Overview

Advanced Micro Devices (NASDAQ:AMD) is a major multinational technology company that manufactures microprocessors, embedded processors, and graphics processors (GPUs) for servers, workstations, personal computers, etc. The company is headquartered in Santa Clara, California. I am Shubhm Thakkar, a student at the Indian Institute of Management – Indore. I have cleared the CFA Level 1 examination and am due to appear for the CFA Level 2 in November 2024. I have past experience publishing on Seeking Alpha as part of my internship at Que Capital which was a subsidiary of AlmaStreet Capital LLC – an entity which previously published on this platform. At AlmaStreet, I followed a GARP Approach – Growth at a Reasonable Price. I intend to use the GARP approach and a Value Investing approach to write my reports on Stocks and ETFs, varying depending on the industry that the stock is a part of and the stage of the business cycle.

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