Advanced Micro Devices, Inc. (NASDAQ:AMD) shares fell modestly in premarket trading on Tuesday ahead of the company’s fourth-quarter earnings release, which is due after the market close.
Raymond James analyst Srini Pajjuri downgraded AMD shares from a Strong Buy to Outperform but upped his price target from $190 to $195. The analyst attributed the downgrade to elevated AI revenue expectations.
Pajjuri noted that the stock is currently trading at 33 times the adjusted non-GAAP estimates for 2025. At this valuation, the stock was already discounting about 20% unit share for AI GPUs, the analyst said, adding that this expectation is closer to his bull-case scenario.
Applying Nvidia Corp.’s (NASDAQ:NVDA) forward P/E multiple of 26 times to AMD, the latter’s current stock price is discounting 2025 earnings per share of $7 compared to the consensus estimate of $5.33.
The analyst expects AMD’s base business to contribute $3.50 to $4 in earnings per share, and AI GPUs should bring in more than $3, equivalent to $12 billion in revenue or 800,000 units.
In comparison, Nvidia is likely to have shipped 2 million AI chips in 2023 and remains on track to increase unit shipments to 3.2 million in 2024, Pajjuri said.
Although the analyst does not rule out AMD’s ability to capture 20% of the AI chip market, he sees it as a tall order.
AMD is expected to report non-GAAP earnings per share of 77 cents on revenue of $6.12 billion, with analysts modeling a positive surprise premised on strong data server processor demand.
In premarket, AMD shares fell 0.41% to $177.10, according to Benzinga Pro data.
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