AMD stock drops following Goldman Sachs downgrade

Investing.com -- Shares of Advanced Micro Devices, Inc. (NASDAQ:AMD ) fell 2.3% today after receiving a downgrade from analysts at Goldman Sachs. The investment bank's analyst Toshiya Hari shifted the rating from Buy to Neutral and reduced the price target from $175.00 to $129.00.

The downgrade was prompted by concerns over the potential impact of Arm-based custom CPUs and increased competition in accelerated computing on AMD's revenue growth and operating expenses. Hari noted that while AMD has been successful in taking market share from Intel (NASDAQ:INTC ) in x86-based computing, the evolving competitive landscape could pressure the company's growth and margins.

Goldman Sachs pointed out that AMD's stock has risen 50% since being added to their Buy list on November 4, 2020. However, this performance trails the S&P 500 's 72% increase over the same period. The underperformance is attributed to a decline in PC and traditional server demand, as well as slower-than-expected growth in Data Center GPUs.

The analyst's comment provides insight into the rationale behind the downgrade: "We are increasingly concerned that the rise of Arm-based custom CPUs coupled with the competitive intensity in accelerated computing will a) weigh on AMD's revenue growth relative to peers, b) exert upward pressure on AMD's opex profile and, c) in turn, weigh on the stock's multiple."

Investors responded to the downgrade by selling off AMD shares, reflecting the market's recalibration of the company's future growth and margin trajectory. The move signifies a shift in sentiment among some investors, who may now await further evidence of AMD's ability to navigate the challenges outlined by Goldman Sachs before regaining confidence in the stock.

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Source: Investing.com