Citi has downgraded Advanced Micro Devices (AMD) from "Buy" to "Neutral," citing concerns over slowing AI revenue growth and potential inventory build-up. The report highlights that AMD's AI revenue is expected to be flat to down in the first half of 2025, with margin dilution, contrasting with peers who are experiencing growth in this segment. Additionally, the lack of AI revenue guidance and potential CPU inventory build-up due to increased production in Q4 2024 are key concerns.
AMD reported Q4 2024 revenue of $7.66 billion, a 12% increase quarter-over-quarter, surpassing consensus estimates. However, the company guided Q1 2025 revenue to $7.10 billion, a 7% decline quarter-over-quarter, aligning with expectations. Despite a 31% sales increase in the second half of 2024, AMD's gross margin only rose by 90 basis points, indicating poor margin leverage.
Citi has lowered its 2025 revenue and EPS estimates from $32.1 billion and $4.29 to $29.6 billion and $3.38, respectively, due to reduced AI and CPU sales expectations. The price target has been adjusted from $175 to $110, reflecting a 28x multiple on 2026 EPS estimates, at the lower end of AMD's historical valuation range.
AMD's stock was trading at $107.86, down 9.74% from the previous close.