Shares of Advanced Micro Devices (AMD) slipped about 5% on Monday after HSBC downgraded the chipmaker, warning that much of the recent rally may already be priced in ahead of its first-quarter earnings report. The downgrade comes after a sharp surge in AMD's stock, which has climbed more than 68% this year and roughly 258% over the past 12 months. April alone marked the company's strongest month on record, with shares soaring more than 74% and hitting an all-time high of $362.79.
HSBC analyst Frank Lee cut the rating to Hold from Buy, citing stretched valuations and limited near-term upside in the company's central processing unit (CPU) business. While the firm raised its price target slightly to $340, that still implies a modest downside from current levels. Lee said the stock's rapid ascent has significantly lifted investor expectations, particularly around AMD's server CPU growth. The valuation has also expanded sharply, with AMD now trading at about 33 times estimated 2027 earnings, up from around 19 times previously, according to HSBC.
Technical indicators suggest the stock may be overheated. AMD's 14-day relative strength index has climbed above 84, placing it firmly in overbought territory. However, analysts note that strong earnings could still extend the rally. Demand for chips tied to artificial intelligence continues to underpin AMD's growth story. Alongside rival Intel, the company has benefited from rising demand for CPUs that power increasingly complex AI workloads.
However, HSBC flagged supply limitations as a key risk. AMD relies heavily on Taiwan Semiconductor Manufacturing Company for production, and capacity constraints at the foundry are expected to persist through the end of the year. While a tight supply may support pricing, it also limits the company's ability to fully capitalise on strong demand. HSBC said these constraints could cap volume growth in both CPU and AI graphics processing unit (GPU) segments.
AMD is scheduled to report results on May 5 for the quarter ended March 31. Analysts expect revenue to rise about 33% to $9.89 billion, up from $7.44 billion a year earlier, according to LSEG data. Earnings are projected at $1.29 per share. The company had previously guided for revenue between $9.50 billion and $10.10 billion, suggesting results could land within expectations.
The competitive landscape remains a factor. HSBC sees potential for Intel to deliver upside surprises in the coming quarters, supported by its in-house manufacturing capabilities, which could help it regain some market share compared to AMD.
