Why AMD Stock Declined 11% Over The Past Week?

AMD stock (NASDAQ:AMD) has seen a meaningful sell-off over the past week, declining by about 11% over the last five trading days.  The stock also remains down by about 25% since early 2024. In contrast, the S&P 500 has gained about 22% since early 2024 while rival Nvidia (NASDAQ:NVDA) has soared by over 160% over the same period. A couple of factors have driven the recent sell-off. AMD stock was downgraded from buy to neutral by analysts at Goldman Sachs, while brokerage firm KeyBanc Capital Markets and HSBC also cut their estimates for the stock recently. The downgrades come amid concerns about mounting competition in the GPU space with Nvidia’s cutting-edge chips as well as other new entrants in the AI market expected to pose a challenge to AMD’s growth. Moreover, while AMD has been gaining market share from Intel in the traditional PC and server CPU space, there are concerns that the overall market could cool off. Over Q4 2024, PC sales expanded by just about 1.8% from the prior year per IDC data, while PC sales rose by just about 1% over 2024. That being said, there are several factors that could drive AMD stock going forward.

New MI350 Chips Could Help AMD Be More Competitive

While AMD was initially focused on GPU for gaming and design, it has quickly pivoted to chips aimed at large language model training and inference for generative AI. Although demand for AMD’s MI325 graphics processing unit has reportedly been soft, we see a couple of trends that could help the company. Although rival Nvidia (NASDAQ:NVDA) has had a head start in the AI-GPU space and has built a solid software ecosystem around its products, AMD is focusing on areas where it can win and capture market share. The company previewed the CDNA 4-powered  MI350 GPU series, expected to launch in late 2025. The MI350 is projected to offer 35x better inference performance than its CDNA 3-powered predecessor. This chip could be more competitive helping drive the company’s performance over the second half of 2025 and through 2026 as well.

Shift To Inferencing, Cost Focus 

The AI market at large is expected to gradually shift from the process of model training to inferencing, which is the process of generating outputs and answers from trained models. Inferencing is less computationally intensive, and it’s very possible that these workloads can be handled very comfortably by AI processors from the likes of AMD. While Nvidia has indicated that inference accounts for roughly 40% of its data center revenue, the company could face mounting competition. MLCommons, a testing organization, indicated that AMD’s MI300X is very competitive with Nvidia’s H100 GPU on AI inference benchmarks. This competitiveness is also translating into real business wins. There have been reports that AMD has been getting some big orders for the MI300X from hyperscalers for AI inference workloads. For example, IBM has indicated that AMD’s MI300X AI silicon will be available on IBM Cloud services during the first half of 2025. Other customers also appear to like the direction AMD is taking with its product roadmap. With Nvidia’s GPUs costing upward of $25,000 each, customers are actively seeking more cost-effective alternatives. For instance, Oracle recently chose AMD’s accelerated computing chips to power its latest supercluster for high-intensity AI workloads, after testing showed that AMD’s GPUs delivered low latency and strong performance at a competitive price. Should you consider Selling Nvidia and Buying AMD?

AMD’s Expertise In CPU and GPUs

AMD’s expertise with both CPUs and GPUs could put it in a unique position as computer hardware evolves. While traditional CPUs are becoming insufficient due to limits in handling complex, parallel-processing AI workloads GPUs excel at these AI-driven applications. AMD’s dual expertise allows it to offer a comprehensive solution that integrates both CPU and GPU capabilities, enabling systems to efficiently balance general-purpose processing with accelerated computing tasks. This could give the company an edge, particularly in the PC market.

The increase in AMD stock over the last 4-year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 57% in 2021, -55% in 2022, 128% in 2023, and -18% in 2024. The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has comfortably outperformed the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could AMD face a similar situation as it did in 2022 and 2024 and underperform the S&P over the next 12 months – or will it see a strong jump?

We remain positive on AMD stock with a price estimate of about $160 per share, which is roughly 35% ahead of the current market price. AMD trades at just about 23x consensus 2025 earnings, which we believe is a reasonable multiple given AMD’s sales growth and prospects in the AI market. AMD’s revenues are projected to grow by about 26% for 2025. See our analysis on AMD Valuation: Is AMD Stock Expensive Or Cheap? for more details on what’s driving our price estimate for AMD. Also, check out our analysis of AMD Revenue for more details on the company’s key revenue streams.

[1] Returns as of 1/14/2025
[2] Cumulative total returns since the end of 2016

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