Shares of Advanced Micro Devices (AMD) experienced a decline of approximately 6 percent on Wednesday as analysts expressed concerns over the chip designer’s ambitious targets for artificial intelligence (AI) expansion. This drop occurred amidst a broader sell-off in the tech sector, with megacap stocks falling between 1.5 percent and 5 percent, while the Philadelphia SE Semiconductor Index witnessed a 3.5 percent decline. The downslide in Wall Street was also influenced by Fitch’s credit rating downgrade of the U.S. government.
The decline in AMD’s stock followed a 4 percent rise during extended trading on Tuesday after the company announced the high customer interest in its upcoming MI300 AI chip, scheduled to ramp up in the fourth quarter. The chip sector has seen a surge this year, driven by the prominence of AI, leading to increased share prices for chip companies and even enabling Nvidia to become the first semiconductor firm valued at over a trillion dollars.
Investors are optimistic that AMD will introduce a competitive chip to challenge Nvidia’s most powerful AI semiconductors and meet the strong demand for chips capable of powering applications such as the chatbot ChatGPT. While AMD’s shares have risen by around 82 percent this year, Nvidia’s stock has more than tripled in value. Moreover, the Philadelphia SE Semiconductor Index has gained approximately 52 percent.
Currently, AMD’s forward price-to-earnings multiple, a widely used valuation benchmark for stocks, stands at 31.40. However, Bernstein analysts cautioned that unless there is a significant demonstration of positive results soon, estimates for AMD remain too optimistic and the stock may be overvalued. Likewise, Summit Insights Group analyst Kinngai Chan mentioned that investors are giving AMD the benefit of the doubt, anticipating a lucrative payday from their AI endeavors.
For the third quarter, AMD projected revenue of around $5.7 billion, with a possible fluctuation of $300 million. On average, analysts surveyed by Refinitiv expect revenue to reach $5.82 billion. The company is currently locked in a battle between bullish investors who foresee it as the next breakthrough concept stock and skeptical bears who demand tangible results before subscribing to the AI hype.
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