AMD’s stock price soars, leading analysts to say “What if I knew?”

Demand for graphics processing units, the artificial intelligence chips that power programs like ChatGPT, has surged in recent months, creating big profits for companies that make GPUs.

AMD It rose nearly 130% in 2023 as investors bet that the company’s AI-oriented GPUs, scheduled to ship this year, could take market share. Nvidia And it provides an alternative to big buyers like Microsoft and Meta.

But with expectations rising for AI chip growth, Northland Capital Markets analyst Gus Richard admitted he’s unsure where AMD stock will go from here.

“We are lowering the valuation to a ‘worst you knew’ rating,” Richard said in a note Monday. He said he has an actual assessment of market performance that equates to a hold.

Richard’s call is based on his view that investor expectations for AI chip growth have spilled over into “irrational exuberance.” He predicts that total AI chip revenue will be $125 billion in 2027, with estimates ranging widely, with some analysts pegging it at $100 billion and others pegging it at $400 billion. He said there was.

“AI is big. It’s really big. It’s just not as big as investors think,” Richard wrote.

Richard said the overall demand signal is distorted for several reasons. First, market leader Nvidia is effectively the “sole source” for AI chips, with demand outstripping supply. This led to customers “double ordering,” or purchasing more in advance than they needed. He also cited recent moves by the United States to ban certain semiconductor exports to China as potentially weighing on growth.

Richard calculates that if AMD sells AI chips for $16 billion in 2027 (doubling annually from $2 billion in 2024), the company will have about 13% market share and continue to do so. They will likely spend more on research and development to maintain market share. Nvidia. He said he expects AMD’s total revenue to be $45 billion in 2027, and that number is already priced in.

AMD stock was down about 3.5% at $168.17 as of Monday afternoon. Nvidia stock rose less than 1%.

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