Advanced Micro Devices (NASDAQ: AMD) shares fell more than 3% following Raymond James’ decision to downgrade the stock from a “Strong Buy” to an “Outperform” rating.
Analyst Srini Pajjuri from Raymond James downgraded AMD stock from a Strong Buy to Outperform, citing elevated AI revenue expectations. However, he increased his price target from $190 to $195.
Pajjuri notes the stock trades at 33x adjusted non-GAAP 2025 estimates. He pointed out that at this valuation, the stock has already factored in approximately a 20% unit share for AI GPUs, which aligns closely with his bullish scenario.
Applying the forward price-to-earnings (P/E) ratio of 26 from NVIDIA Corporation (NASDAQ: NVDA) for AMD, the current stock price of the latter suggests an anticipation of 2025 earnings per share at $7, exceeding the consensus estimate of $5.33.
The analyst predicts that AMD’s core business will generate between $3.50 and $4 per share in earnings. In addition, revenue from AI GPUs is expected to exceed $3, which equates to $12 billion in revenue or 800,000 units.
On the other hand, Nvidia is expected to have delivered 2 million AI chips in 2023, with plans to further increase shipments to 3.2 million in 2024, according to Pajjuri. Despite not discounting AMD’s potential to secure a 20% share in the AI chip market, the analyst views this as a challenging objective.
AMD (NASDAQ: AMD) Stock Movement
AMD stock declined -3.24% on Tuesday. The traders had exchanged hands with 115,834,379 (115.83 million) shares compared to the average daily trading volume of 68.08 million.
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