AMD’s future prospects are becoming increasingly uncertain, with mounting competition from NVIDIA and potential disruptions in the global semiconductor market. Recent updates from Melius Research and other analysts suggest that the chipmaker could face significant headwinds as it navigates the challenges of both market shifts and geopolitical tensions.
Melius Research Downgrades AMD
Melius Research analyst Ben Reitzers recently downgraded AMD’s stock from a “Buy” to a “Hold” rating, citing concerns about long-term growth prospects for the company. This downgrade is not related to the ongoing DeepSeek AI model saga, but rather to AMD’s competitive position in the x86 server and PC markets, particularly with the rise of NVIDIA’s Arm-based CPUs.
In a note to investors, Reitzers explained:
“We are increasingly concerned that custom CPUs and NVIDIA CPUs will cannibalize even more of the x86 server market long-term, even though AMD’s current chip, Turin, is doing well.”
While AMD’s Turin processor has seen success, Melius Research is now cautious about AMD’s long-term dominance in the face of NVIDIA’s growing influence in both the CPU and GPU sectors.
Reitzers also emphasized that his downgrade was not driven by DeepSeek’s impact on the hyperscaler market or the potential underperformance of AMD’s MI300 GPU in 2025:
“Believe it or not, it’s not due to DeepSeek. We cut numbers already on January 6th on GPUs, and the stock actually went up 3%, so a guide down on disappointing MI300 sales for 2025 is already expected.”
Despite these concerns, Melius Research has set a target price of $129 for AMD shares, implying a 12% upside potential from the stock’s current pre-market price of $115.25.
Rising Competition from NVIDIA’s Arm-based CPUs
A key factor behind Melius Research’s downgrade is the belief that NVIDIA is poised to significantly challenge AMD in both the CPU and GPU markets with its Arm-based processors. NVIDIA’s new Arm-based CPUs, optimized for accelerated computing, are seen as a growing threat to AMD’s position in the x86 server and PC markets.
NVIDIA’s strategy of shifting towards custom Arm-based solutions is expected to erode AMD’s market share over the long term. As Reitzers points out, even though AMD is doing well with its Turin chip, NVIDIA’s innovation in custom CPU solutions could be a game-changer:
“NVIDIA is going to increasingly ‘come for them’ in both markets [CPU and GPU] with their Arm-based CPUs that are optimized for accelerated PCs.”
Potential Tariffs on Taiwanese Semiconductors
Further complicating AMD’s outlook is the looming threat of tariffs on Taiwanese semiconductors. U.S. President Donald Trump has indicated plans to impose tariffs on all semiconductor and pharmaceutical products imported from Taiwan, a move designed to encourage TSMC (Taiwan Semiconductor Manufacturing Company) to localize production within the United States.
Such tariffs could have significant implications for AMD, which relies heavily on TSMC for the production of its chips. If implemented, these tariffs would likely reduce AMD’s market share in both the x86 client and enterprise server sectors, as the company would face higher production costs and potential supply chain disruptions.
In contrast, Intel, which manufactures many of its chips domestically, could emerge as the primary beneficiary of these tariffs, solidifying its position in the market.
A Challenging Future for AMD
As AMD faces increasing pressure from both NVIDIA and potential geopolitical changes, its future growth prospects appear less certain. Analysts are concerned that AMD may struggle to maintain its competitive edge in the AI and GPU markets, particularly with NVIDIA’s growing influence and the uncertainty surrounding tariffs on Taiwanese semiconductors.
Recent reports from HSBC and Wolfe Research further highlight these concerns. HSBC noted that AMD’s AI GPU roadmap is less competitive than previously anticipated, limiting its ability to penetrate the AI GPU market. Meanwhile, Wolfe Research cautioned that AMD is unlikely to be in a position to lead the AI sector in 2025.
In conclusion, while AMD remains a key player in the semiconductor industry, it faces mounting challenges from competitors like NVIDIA and external factors such as the potential for tariffs on Taiwanese semiconductors. As the company navigates these hurdles, its ability to adapt and innovate will be critical to maintaining its market position.