Investing.com -- Shares of Advanced Micro Devices (NASDAQ: AMD ) dropped 3.4% in premarket trading after Jefferies analyst Blayne Curtis downgraded the stock from Buy to Hold and lowered the price target from $135.00 to $120.00. The downgrade was influenced by a proprietary GPU benchmarking report indicating that AMD’s performance in artificial intelligence (AI) and competition with Nvidia (NASDAQ: NVDA ) and Intel (NASDAQ: INTC ) may pose challenges.

Curtis’s assessment pointed to AMD’s MI300x GPU still lagging behind Nvidia’s H200 in real-world performance, despite AMD’s higher advertised TFLOPs and memory bandwidth. The report highlights the importance of Nvidia’s mature software stack for GPU efficiencies, which is expected to widen the performance gap with the introduction of new technologies such as Blackwell and Rubin.

The downgrade also reflects concerns over AMD’s limited traction in the AI market, overly optimistic Street estimates, and the potential for increased competition from Intel. Jefferies anticipates more downside risk than upside potential for AMD in the near term, as the proprietary benchmarking study suggests AMD has significant ground to cover before it can effectively compete with Nvidia.

The analyst commented on the downgrade, stating, "Transitioning AMD to Hold with $120 PT given limited traction in AI, expectations for mounting competition from Intel, and results from proprietary benchmarking study suggesting AMD has considerable ground to cover before their products can compete with NVDA. The stock has already pulled back significantly, but Street estimates still seem too high, and we see more downside risk than upside potential near-term."

AMD’s perceived shortcomings in the AI space and the anticipated widening of the performance gap with competitors are crucial factors contributing to the stock’s premarket decline. Investors are reacting to these insights as they recalibrate their expectations for AMD’s market position and future performance.

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