Why AMD Stock Is Sinking Today

AMD (NASDAQ: AMD) stock is losing ground in Wednesday's trading. The semiconductor company's share price was down 3.6% as of 11:45 a.m. ET and had been down as much as 5.2% earlier in the session.

AMD stock is falling today on the heels of bearish coverage from HSBC. The firm issued a rare double downgrade for its rating on the stock and slashed its one-year price target.

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HSBC turns bearish on AMD stock

In a note published before the market opened this morning, HSBC downgraded its rating on AMD stock from buy to reduce. The firm's analysts also cut their one-year price target from $200 per share to $110 per share. As of this writing, the new price target suggests additional downside of 10%.

While artificial intelligence (AI) has been a major component of the bull case for AMD stock, HSBC now thinks the company's competitive position in the space is weaker than previously conceived. The analysts think the chip specialist will have a harder time competing with Nvidia and gaining market share in the AI data center market that's currently the prize in the advanced processor space. Specifically, HSBC's analysts are forecasting relatively soft demand for AMD's new M1325 graphics processing unit (GPU).

What comes next for AMD?

While AMD has plenty of long-term growth opportunities still on the table, catching up to Nvidia in the advanced GPU market will be no easy feat. Along those lines, HSBC's analysts expect the smaller chip company won't have a leading solution for AI rack servers that can compete with Nvidia's until late 2025 or early 2026. That could mean AMD's financial performance this year will wind up falling significantly short of Wall Street's expectations.

In response to these dynamics, HSBC has lowered its forecast for the chip specialist's AI GPU from $12.3 billion to $8.1 billion. But while analysts have been turning markedly more bearish on AMD, recent sell-offs may be raising the stock's appeal as a contrarian play on the artificial intelligence market. The company's share price is now down roughly 42% from its high, and new product announcements or signs of solid momentum in the AI space could help kick off a rebound rally.

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HSBC Holdings is an advertising partner of Motley Fool Money. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends HSBC Holdings. The Motley Fool has a disclosure policy.