AMD's AI story was already 'tenuous,' and now the stock has new challenges

MW AMD's AI story was already 'tenuous,' and now the stock has new challenges

By Therese Poletti

Bernstein says AMD's AI chips remain uncompetitive. That's nothing new, but in the PC business, AMD now must cope with a potentially 'more aggressive' Intel.

Advanced Micro Devices Inc. was already "uncompetitive" in the artificial-intelligence market, according to Bernstein Research. Now the company can't sell its AI accelerators in China and it faces new pressures on its personal-computer business.

Bernstein analyst Stacy Rasgon said in a note to clients Tuesday that AMD's $(AMD)$ core PC business appears to be exposed to channel effects, stemming from the Trump administration's tariffs on the global supply chain of goods both made in and shipped to and from China. He said client shipments in the first quarter were higher than they were at the height of the pandemic bubble, as companies stocked up on components to make and ship systems ahead of anticipated tariffs.

Another looming problem is AMD's big rival, Intel Corp. $(INTC)$, which is also seeing customers stock up on PC inventory. But for AMD, "the threat of a cornered, and hence more aggressive, Intel remains."

If AMD customers ended up pulling forward purchases into the last quarter, that means the company could face a challenge in the second quarter. At the same time, that'll be when AMD is set to record a big charge for its AI accelerator chips that it can no longer sell in China, due to new U.S. export controls.

Rasgon cut his second-quarter and 2025 estimates for AMD's earnings and revenue, citing those new U.S. export rules, though he also slightly raised his first-quarter estimates because of advance chip-buying by PC makers. AMD reports first-quarter earnings on May 6.

"Unfortunately for AMD, the AI story, already somewhat tenuous, is likely to take another material haircut on the back of new China sanctions," Rasgon said.

He is now looking for AMD to report first-quarter revenue of $7.13 billion, versus $7.10 billion previously, while he still expects 93 cents a share in earnings. That's in line with the FactSet consensus view.

For the second quarter, though, Rasgon lowered his revenue estimates for AMD to $6.79 billion from $7.38 billion previously. The FactSet consensus is for $7.25 billion in revenue. Once AMD takes the expected $800 million charge for its Chinese AI accelerator-chip inventory, Rasgon expects second-quarter earnings per share of 38 cents. He previously modeled 97 cents.

Rasgon noted that for AMD, every $1 billion in lost revenue equates to about 25 cents per share in earnings.

For full-year 2025, Rasgon now expects $28.6 billion in revenue, versus $31 billion previously, along with $3.13 in earnings per share when factoring in the charge. That estimate is down from $4.24 before.

Last week, AMD said it would be taking a charge of up to $800 million in the second quarter, as the new export restrictions on China from the U.S. will affect sales of its MI308 chips. AMD's news came on the heels of a similar announcement from Nvidia Corp. $(NVDA)$, which said it will be taking a charge of up to $5.5 billion.

Rasgon pointed out that he believes AMD's AI roadmap "remains uncompetitive" compared with Nvidia's current chip lineup, "let alone the new Blackwell Ultra and Rubin offerings coming down the pipeline."

He's sticking with his market-perform rating and $95 price target on the stock, which was down about 0.4% on Tuesday.

-Therese Poletti

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

April 22, 2025 15:57 ET (19:57 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.