Advanced Micro Devices (AMD) faced a setback as its shares took a tumble, sliding around 6% on Wednesday. Analysts have expressed concerns about the chip designer’s goals for expanding into artificial intelligence (AI), suggesting that they may be too ambitious.
This decline occurred amid a broader sell-off in the tech sector, with mega-cap stocks experiencing drops between 1.5% and 5%, and the Philadelphia SE Semiconductor Index witnessing a 3.5% decrease. Wall Street also took a hit following credit rating agency Fitch’s downgrade of the US government’s credit rating.
The drop in AMD’s stock comes after an initial 4% rise during extended trading on Tuesday. The company had announced that customer interest in its upcoming MI300 AI chip, slated for release in the fourth quarter, was very high.
Artificial intelligence has been a prominent theme in the chip sector this year, driving up shares of chip companies and contributing to Nvidia’s achievement of being the first and only semiconductor firm to surpass a trillion-dollar valuation.
Investors are hoping that AMD will develop a formidable competitor to Nvidia’s most powerful AI semiconductors, contributing to the surging demand for chips that can power applications like chatbot ChatGPT.
While AMD’s shares have risen approximately 82% this year, Nvidia’s stock has more than tripled in value. The Philadelphia SE Semiconductor Index has also experienced significant gains, increasing by approximately 52%.
AMD’s forward price-to-earnings multiple, a commonly used benchmark for valuing stocks, currently stands at 31.40.
Bernstein analysts expressed their concerns in a note, stating, Unless numbers get really material, soon, we fear estimates remain too high and the stock (AMD) looks a little stretched to us.
Kinngai Chan, an analyst at Summit Insights Group, mentioned that investors are giving AMD the benefit of the doubt in the hopes of a substantial return from AI technology.
AMD has forecasted third-quarter revenue of approximately $5.7 billion, with a margin of error of plus or minus $300 million. However, analysts surveyed by Refinitiv have estimated an average revenue of $5.82 billion.
On one hand, those optimistic about AMD anticipate it becoming the next concept stock, while skeptics demand tangible results and proof of AI hype.
In conclusion, Advanced Micro Devices (AMD) saw its shares decline by 6% amid concerns raised by analysts regarding the chip designer’s ambitious AI expansion targets. This drop occurred alongside a broader sell-off in the tech sector and Wall Street’s reaction to the US government’s credit rating downgrade. While investors hope for a strong AI chip to rival Nvidia’s products, analysts questioned the feasibility of AMD’s estimates.
