Investing.com -- AMD (NASDAQ:AMD) shares are down more than 10% premarket Wednesday after Citi downgraded the stock from Buy to Neutral, citing slowing AI growth, weaker margin leverage, and concerns over inventory buildup.
The share price decline extends the stock’s recent downtrend.
Citi also lowered its price target for the stock from $175 to $110, stating that AMD’s AI revenue is expected to be flat to down in the first half of 2025, well below peers.
“AMD didn’t provide AI revenue guidance, and it appears AMD’s AI revenue is flat to down for 1H25 with margin dilution,” Citi wrote.
While the company reported better-than-expected Q4 revenue of $7.66 billion, exceeding both Consensus ($7.51 billion) and Citi’s estimate ($7.50 billion), the analysts flagged concerns over a potential inventory build in CPUs following strong Q4 shipments by both AMD and Intel (NASDAQ:INTC).
Despite the 12% sequential revenue growth in Q4, Citi noted that gross margin only increased by 90 basis points even as sales rose 31% in the second half of 2024, suggesting poor operating leverage.
AMD’s Q1 guidance of $7.10 billion was slightly above expectations, but Citi believes that weakening AI momentum and risks of a CPU inventory correction will weigh on future performance.
The firm cut its 2025 revenue and EPS estimates from $32.1 billion and $4.29 to $29.6 billion and $3.38, and slashed its 2026 forecasts from $40.0 billion and $6.56 to $31.5 billion and $3.95, citing lower AI and CPU sales. Citi also introduced a 2027 revenue and EPS forecast of $33.5 billion and $4.55.
“We downgrade AMD from Buy to Neutral given slowing AI growth (lower multiple), poor leverage, and risk of an inventory correction,” Citi concluded. The firm’s price target of $110 is based on 28x its 2026 EPS estimate, reflecting a lower growth outlook for AMD.