Morgan Stanley downgraded Advanced Micro Devices (AMD: NSD) stock on Monday, citing concerns that investor expectations for the company’s performance in artificial intelligence (AI) are inflated.
Comparative Analysis and Reasoning:
The investment bank lowered its rating on AMD from “overweight” to “equal weight” and maintained a price target of $176 per share. Analysts at Morgan Stanley acknowledged AMD’s strong position in its core markets but expressed caution regarding the stock’s valuation. They believe the current price might not be justified by the company’s AI capabilities.
In a note to clients, Morgan Stanley’s analyst team, led by Joseph Moore, stated, “We like the AMD story, but investor expectations for the AI business still seem too high to us.” The analysts see limited potential for upward revisions to AMD’s stock price even with a recovery in its core business.
Morgan Stanley Prefers Nvidia and Broadcom Over AMD:
According to Morgan Stanley, AMD’s stock appears expensive compared to other big-name chipmakers like Nvidia (NVDA) and Broadcom (AVGO). The analysts expressed more confidence in the potential for upward revisions to AI forecasts for these companies. Nvidia recently achieved a market capitalization of $3 trillion, highlighting investor enthusiasm for its AI offerings.
The analysts also believe that investor expectations haven’t fully considered the potential impact of Nvidia’s upcoming Blackwell Ultra chip, expected to launch next year. This new chip could further tighten Nvidia’s grip on the AI market, posing challenges for competitors like AMD. As a result, Morgan Stanley shifted its preference towards Broadcom as the second-favorite large-cap AI play behind Nvidia.
Impact of Morgan Stanley Ratings:
The downgrade by Morgan Stanley sent AMD’s stock price down over 2% in premarket trading on Monday. This news reflects a broader trend of cautious optimism surrounding AMD. While the company holds a strong position in the chip market, investors might need to adjust their expectations for its AI segment’s near-term financial contributions.
Muzzammil is a content writer at Stock Target Advisor. He has been writing stock news and analysis at Stock Target Advisor since 2023 and has worked in the financial domain in various roles since 2020. He has previously worked on an equity research firm that analyzed companies listed on the stock markets in the U.S. and Canada and performed fundamental and qualitative analyses of management strength, business strategy, and product/services forecast as indicated by major brokers covering the stock.
