Lisa Su displays an AMD Instinct MI300 chip while delivering a keynote address at CES 2023 on January 4, 2023 in Las Vegas, Nevada.
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Demand for graphics processors — the artificial intelligence chips that power programs like ChatGPT — has been surging for months, driving significant gains for the companies that make GPUs.
AMD rose nearly 130% in 2023 as investors bet that the company's AI-focused GPUs, due to launch this year, can take market share from Nvidia and provide an alternative for big buyers like Microsoft and Meta.
But increased expectations for AI chip growth have prompted Northland Capital Markets analyst Gus Richard to admit he's not sure where AMD stock goes from here.
“We're downgrading the rating to 'Damned if we know,'” Richard wrote in a note Monday. He said he has an actual assessment of market performance, which amounts to a hold.
Richard's call is based on his view that investor expectations for the growth of AI chips have descended into “irrational exuberance.” He forecasts total AI chip sales of $125 billion in 2027 and says the range of expectations is so wide that some analysts are putting it at $100 billion and others at $400 billion.
“AI is big, it really is big, just not as big as investors think,” Richard wrote.
Richard said overall demand signals were distorted for several reasons. First, market leader Nvidia was effectively a “sole source” for AI chips and demand exceeded supply. This resulted in customers “double ordering,” or purchasing more in advance than they needed. He also cited recent U.S. moves to ban certain chip exports to China as something that could weigh on growth.
If AMD sold $16 billion worth of AI chips in 2027 — doubling every year from $2 billion in 2024 — Richards calculates that the company would have about 13% market share and continuing to grow invest in research and development to keep up with Nvidia. He sees total revenue for AMD of $45 billion in 2027 and says that number is already priced into the stock.
AMD shares fell about 3.5% to $168.17 on Monday afternoon. Nvidia shares rose less than 1%.
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