Based on premarket activity, it is estimated that AMD could incur a potential loss of approximately $20 billion in market capitalization. The company has been a notable beneficiary of the increased demand for chips driven by the generative AI trend, resulting in a substantial stock price increase of nearly 156% since the end of 2022.
However, the company's cautious quarterly revenue outlook and a $5 billion sales target for AI chips by 2025 indicated that the demand for these processors is outpacing production capabilities. CEO Lisa Su noted that chip supplies are expected to remain constrained into the next year.
"It is likely unappealing for a company associated with AI to provide guidance that is merely in line, let alone below expectations," stated Bernstein analyst Stacy Rasgon.
"Currently, while AI performance is not objectively poor, it seems unlikely to exceed existing expectations, and discussions about potential 'lumpiness' in business for 2025 may heighten risk or at least raise concerns," Rasgon added.
Other semiconductor companies, including Arm and Qualcomm, also experienced declines of over 2%. In contrast, Nvidia, a leader in AI chips, saw a minor decrease of just 0.3%, suggesting that investors do not anticipate a similar supply shortage affecting the company.
Both Nvidia and AMD depend on TSMC, a major chip manufacturer, for the production of their advanced AI chips, but analysts have expressed minimal concern regarding Nvidia's supply situation.
"AI remains central to AMD's narrative, and while the company has consistently raised sales expectations throughout this year, the worry is that AMD may struggle to exceed the already high Street estimates of $8 billion to $9 billion for calendar year 2025," noted analysts from Jefferies.
At least ten analysts have reduced their target price for AMD stock, while eight have increased their projections, resulting in a median target of $187.50, according to LSEG data. This figure indicates a potential upside of nearly 13% from the company's most recent closing price.
AMD's stock is currently valued at nearly 32 times its projected earnings for the next 12 months, compared to 36 times for Nvidia.