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Chip designer Advanced Micro Devices, Inc (AMD) saw its price target cut by the investment firm KeyBanc earlier this week due to weakening demand and excess inventory. AMD, like other chip firms, had a tough 2022 as a worsening global macroeconomic environment hampered the firm's product demand. However, KeyBanc remains optimistic about the computing firm in the long term, as it believes that AMD will capture close to one third of the highly lucrative server market by the end of this year.
AMD's Data Center Shipments Grew In November, Aided By Microsoft's Strong Spending
KeyBanc's report was released yesterday and it covers the current state of the semiconductor market, which is entering the year on a subdued note after a bloodbath that has seen heft losses in share prices for nearly every player. According to KeyBanc, times are tough for both AMD and NVIDIA, as it slashes price targets all around. For NVIDIA, the firm's latest price target is $220, down from an earlier $230 for a 4% reduction. For AMD, the price target was reduced to $80.
Alongside, KeyBanc shares positive news for NVIDIA's latest graphic card launch, as it outlines that demand for the RTX 40 lineup is off to a "strong start." In terms of products, the 4090 is seeing strong demand, while the 4080 is still "healthy' despite being weaker than the 4090. Crucially, the channel inventory problems particularly of legacy GPUs also appears to be stabilizing, according to KeyBanc; however, inventory of the RTX30 series is still in excess.
For AMD, gaming GPU inventories are still at four months, a slight improvement over the four to five months of inventory in the fourth quarter of 2022. A slowdown in gaming demand, particularly in China, will push out $2.5 billion in gaming revenue for NVIDIA a quarter forward to the firm's quarter that ends in July as opposed to the quarter ending in April.
For NVIDIA, the price target reduction is based on a slowdown in the personal computing segment, reduced orders in the cloud segment and excess inventory. For the data center segment, AMD did improve shipments during December, as KeyBanc's data shows that in the cloud sector, the firm's processor instances grew by 5% monthly and 100% annually. The growth was fuelled by Rome and aided particularly by Microsoft's strong spending in the area, which comes at a time when others are slowing down. The monthly and annual growths beat NVIDIA, whose instances grew by 2% and 24%, respectively.
KeyBanc also believes that AMD Genoa is providing strong competition to Intel's Sapphire Rapids, and end up gaining market share throughout this year due to lower power consumption and higher cores. The firm's research indicates that from the 22% market share that AMD held in the server market by 2022 end, the firm will grow this to 30% by the end of 2023. In fact, the strong server market share estimates are a key reason that KeyBanc continues to stick with an Overweight rating for AMD's shares despite the share price target reduction.
For the latest product launches, while NVIDIA's graphics cards are seeing a strong response, AMD customers are taking it slow. According to KeyBanc, AMD's Ryzen 7000 lineup is seeing soft demand, as inventories of older products are high and retailers are struggling to clear them out. AMD is offering rebates to help with the product flow, which has yielded some favorable results. Intel is also suffering from similar problems, with rebates of up to 20% offered for the older Alder Lake lineup in order to clear the channel for the latest Raptor Lake platform. Additionally, KeyBanc believes that a 10% price increase for Raptor Lake does not match the small performance increase.