AMD Downgraded: Melius Research Cuts Price Target Amidst Growing Nvidia Competition
Melius Research analyst Ben Reitzes recently downgraded Advanced Micro Devices (AMD) from a Buy to a Hold rating, simultaneously lowering the price target from $160 to $129. This significant shift reflects a growing concern over the intensifying competition from Nvidia, particularly in the crucial x86 server and PC markets. Reitzes’ revised estimates paint a more cautious outlook for AMD’s near-term and long-term growth, highlighting potential challenges in maintaining market share against Nvidia’s burgeoning presence in the AI and accelerated computing sectors. The downgrade, while factoring in already anticipated disappointing MI300 sales for 2025, also signals a broader shift in the analyst’s assessment of AMD’s overall competitive landscape.
Key Takeaways: What You Need to Know
Downgrade and Price Target Cut: Melius Research downgraded AMD from Buy to Hold, slashing the price target from $160 to $129.Nvidia’s Growing Threat: The downgrade primarily stems from concerns about increasing competition from Nvidia, particularly with its Arm-based CPUs targeting accelerated PCs and the x86 server market.Revised Revenue and EPS Estimates: Reitzes significantly revised AMD’s revenue and earnings per share (EPS) estimates downwards for 2025, 2026, and 2027, reflecting lower growth projections.Market Share Concerns: The analyst anticipates that Nvidia’s custom and Arm-based CPUs will increasingly cannibalize AMD’s market share in x86 servers, potentially impacting future growth.Current Market Reaction: Following the downgrade, AMD stock experienced a slight dip, indicating market sensitivity to the analyst’s revised outlook.
Melius Research’s Rationale: A Deeper Dive into the Downgrade
Reitzes’ decision to downgrade AMD wasn’t spur-of-the-moment. He admitted he should have adjusted his rating 10 months prior, after a significant surge in AMD’s stock price during the first quarter of 2024 which saw a +40% increase. He emphasized that this decision is not solely attributed to concerns about the DeepSeek technology, hinting at more fundamental shifts in the market dynamics.
Concerns Regarding the PC and Server Markets
A significant element driving the downgrade is Reitzes’ growing concern about AMD’s long-term prospects in the x86 server and PC markets. He explicitly points to Nvidia’s assertive moves with its Arm-based CPUs, designed specifically for “accelerated PCs.” These CPUs are increasingly competitive and pose a significant threat to AMD’s established market position.
Furthermore, Reitzes fears that Nvidia’s custom CPUs will further erode AMD’s stake in the lucrative x86 server market, even with AMD’s current generation Turin chip performing well. This anticipated market share erosion has prompted a substantial reduction in his revenue forecasts for both PC and server CPUs.
Revised Financial Projections: A More Conservative Outlook
The impact of these concerns is clearly reflected in Reitzes’ revised financial projections. While he maintained his 2024 EPS estimate at $3.33, the forecasts for subsequent years were significantly reduced. For 2025, the EPS estimate dropped from $4.91 to $4.54, reflecting lower revenue growth from 22% to 19%. Data Center growth was also revised down from 39% to 32% for 2025, indicating a more conservative forecast despite a still impressive growth rate.
This trend continues into 2026 and 2027. The projections for EPS, revenue growth, and Data Center growth were all revised downward. For instance, by 2027, the EPS estimate has shrunk from $7.98 to $6.1, with revenue growth declining from a projected 15% to 12%. These revisions underscore Reitzes’ increased caution regarding AMD’s ability to maintain its projected growth trajectory. Notably, he points out specific slowdowns in PC CPU revenue growth, dropping to 7% in fiscal 2026 from a previously forecasted 10%, and even lower to 3% in 2027. Traditional data center sales growth forecasts were also reduced, highlighting the intensifying competition within this sector.
Impact of Lower Operating Margins: A Mixed Picture
Reitzes’ revised estimates also account for slightly lower operating margins. This is specifically cited within AMD’s data center segment, indicating a potential shift in the product mix and pricing strategies necessitated by increased competition. To compensate, AMD might need to focus on market share even at the cost of margin pressure, as has been observed in competitors like Intel. The overall picture from these margin forecasts remains relatively positive but displays concern about sustainability compared to previous projections.
The Impact of Nvidia’s Arm-Based Advancements
Nvidia’s foray into Arm-based CPUs represents a major disruptive force. The utilization of Arm architecture allows for greater optimization in specific computing tasks, particularly within the burgeoning AI and accelerated computing sectors. Nvidia’s strategic investment in this technology directly challenges AMD’s dominance in x86 architecture, potentially impacting both its server and PC CPU markets. This makes AMD’s future less certain than it previously seemed.
Cannibalization Concerns: A Major Threat
Reitzes’ concern regarding “cannibalization” is critical. His assessment suggests that Nvidia’s custom and Arm-based CPUs will effectively cut into AMD’s existing market share, thereby limiting AMD’s future revenue growth. This isn’t just a small incremental impact, but a strategic challenge that requires a robust response from AMD to counter Nvidia’s aggressive push into the market that once seemed AMD’s domain.
Market Reaction and Future Outlook
AMD’s stock price showed a minor dip following the release of Reitzes’ report. Whilst not a dramatic decline, it reflects the market’s immediate sensitivity to the downgrade and the revised projections. This initial negative sentiment suggests that investors are taking the analyst’s concerns seriously, especially given the weight of Melius Research within the industry.
Continued Monitoring: A Crucial Factor
The long-term implications of Reitzes’ downgrade remain to be seen. AMD will need to demonstrate its ability to counter Nvidia’s competitive advances and maintain its growth trajectory. Investors should continuously monitor AMD’s strategic responses, technological innovations, and market performance in light of the concerns raised in the Melius Research report. The coming quarters will likely offer further insights into the validity of Reitzes’ projections and the broader impact of Nvidia’s rising influence.
Ultimately, this situation highlights the dynamic nature of the semiconductor industry and the crucial role of adaptable strategies to navigate the evolving market landscape. Only time will tell if AMD can effectively meet the competitive challenges laid out by Melius Research.
