AMD Faces a Steep Climb Against Nvidia in AI Chip Race

Advanced Micro Devices (AMD) is facing growing skepticism about its ability to compete with Nvidia in the booming AI chip market. HSBC analyst Frank Lee downgraded AMD's stock to “reduce” from “hold”, citing a less competitive AI GPU roadmap than previously expected.

Tough Year Ahead for AMD
AMD’s shares fell 4.5% on Wednesday following the downgrade, adding to the 18% decline it experienced in 2024. In stark contrast, Nvidia’s stock surged 171% over the same period, underscoring Nvidia's dominance in the AI sector.

Lee set a new price target for AMD at $110, nearly 14% below Tuesday’s closing price. His bearish outlook is driven by “lukewarm demand” for AMD’s MI325 GPU, which he believes is hampered by lower-than-expected high-bandwidth memory specifications due to supply issues.

Lagging Behind Nvidia
While AMD plans to launch its MI350 GPU in the second half of 2025, Lee noted that the company won’t have a competitive AI rack solution until the release of its MI400 in late 2025 or early 2026. This timeline leaves Nvidia’s NVL rack platform with a significant competitive edge for the foreseeable future.

AMD also faces pressure from Marvell Technology and Broadcom, two companies producing application-specific integrated circuits (ASICs), which are emerging as alternatives to GPUs in the AI market.

“We now believe AMD will not only face challenges narrowing its AI GPU roadmap gap with Nvidia, but also potential long-term competition from AWS’s ASIC supply chain,” Lee added, referencing Amazon Web Services’ growing influence.

Broader Challenges for AMD
AMD’s non-AI businesses aren’t expected to provide much of a buffer. While its client business is projected to grow 12% this year, that’s a significant slowdown compared to the 44% growth it achieved in 2024. Similarly, Lee cut his growth expectations for AMD’s server business, citing “muted overall server-industry growth” despite AMD’s efforts to gain market share.

Outlook
HSBC’s downgrade reflects the increasingly difficult path AMD faces as it tries to close the gap with Nvidia in AI. With stiff competition, supply challenges, and a slower product timeline, AMD’s journey in the AI GPU market appears fraught with hurdles. Investors may need to temper expectations as AMD navigates these headwinds in the year ahead.