Bank of America has downgraded AMD’s stock rating to “neutral” following concerns about weak customer demand for the company’s AI chips, particularly from Amazon Web Services (AWS). The downgrade comes after a Business Insider report revealed that AWS is “not yet” seeing strong enough customer demand to deploy AMD’s AI chips through its cloud platform.
The financial impact is significant: BofA analysts lowered their AMD GPU sales forecast for next year to $8 billion from $8.9 billion, implying approximately 4% market share in the AI chip market. AMD’s stock responded negatively, dropping roughly 5.6% on Monday after falling about 2% on Friday, leaving shares down approximately 5% year-to-date.
Bank of America cited multiple competitive pressures limiting AMD’s growth potential in the AI chip market. These include Nvidia’s continued dominance, AWS’s preference for its in-house Trainium AI chip, and growing demand for custom chips from Marvell and Broadcom. The analyst note specifically mentioned that “largest cloud customer Amazon strongly indicated its preference for alternative custom (Trainium/MRVL) and NVDA products, but a lack of strong demand for AMD.”
Both companies have responded to the concerns. An AMD spokesperson emphasized the company has a “great relationship” with AWS, stating they are “actively engaged with AWS and end customers on AI opportunities.” AWS’s spokesperson confirmed the partnership, saying “AWS and AMD work together closely, as we continue to make AWS the best place to run AMD silicon. Based on the success of AMD CPUs on AWS, we are actively looking at offering AMD’s AI chips.”
Despite the downgrade, Bank of America sees potential upside for AMD. The analysts noted that AMD could still succeed in the AI chip market due to Nvidia’s supply constraints and premium pricing, making AMD a strong alternative, particularly for internal cloud workloads. Additionally, AMD is well-positioned in the server chip market as rival Intel continues to struggle with its own challenges.
AMD recently increased its GPU sales forecast just a year after launching its line of AI chips, but its market share remains far behind Nvidia’s dominant position in the AI accelerator market.
Key Quotes
Recently largest cloud customer Amazon strongly indicated its preference for alternative custom (Trainium/ MRVL) and NVDA products, but a lack of strong demand for AMD
This statement from Bank of America’s analyst note reveals the core concern behind the downgrade, showing that AWS is prioritizing its own custom chips and Nvidia products over AMD’s offerings, which directly impacts AMD’s growth prospects in the AI market.
We are actively engaged with AWS and end customers on AI opportunities
An AMD spokesperson provided this response to Business Insider, attempting to reassure investors that despite the concerns, the company maintains strong relationships with AWS and continues to pursue AI chip opportunities.
AWS and AMD work together closely, as we continue to make AWS the best place to run AMD silicon. Based on the success of AMD CPUs on AWS, we are actively looking at offering AMD’s AI chips.
AWS’s spokesperson offered this statement to clarify the partnership status, suggesting that while AMD CPUs have been successful on the platform, AI chip deployment is still in the evaluation phase rather than active deployment.
Our Take
This downgrade reveals a critical challenge for AMD’s AI ambitions: breaking into a market where Nvidia has established overwhelming technical and ecosystem advantages. The lukewarm response from AWS is particularly telling because cloud providers are the primary customers for AI accelerators. What’s especially concerning is that AWS isn’t just choosing Nvidia—they’re building their own chips, suggesting the economics of custom silicon are compelling enough to justify the investment. This trend toward vertical integration by hyperscalers could fundamentally limit the addressable market for third-party chip vendors. However, AMD’s positioning as a “second source” remains valuable given Nvidia’s supply constraints and premium pricing. The key question is whether being the backup option generates sufficient volume to justify AMD’s R&D investments in AI chips, or if the company needs to pivot its strategy toward specialized use cases where it can differentiate beyond price.
Why This Matters
This downgrade highlights the intense competitive dynamics in the rapidly growing AI chip market, where Nvidia maintains overwhelming dominance despite efforts by competitors like AMD to gain market share. The story is particularly significant because it reveals how cloud providers like AWS are increasingly developing custom AI chips (like Trainium) rather than relying solely on third-party vendors, fundamentally reshaping the AI hardware ecosystem.
The weak demand signals from AWS, one of the world’s largest cloud providers, raise questions about AMD’s ability to capture meaningful share in the $100+ billion AI chip market. This matters for the broader AI industry because chip availability and diversity are critical for sustaining AI innovation and preventing monopolistic control. If AMD struggles to gain traction, it could leave Nvidia with even greater pricing power and market control.
For businesses investing in AI infrastructure, this news underscores the importance of chip supply chains and vendor relationships. The growing preference for custom chips from hyperscalers suggests that vertical integration may become the dominant model in AI hardware, potentially limiting options for smaller companies that rely on cloud platforms for AI deployment.
Recommended Reading
For those interested in learning more about artificial intelligence, machine learning, and effective AI communication, here are some excellent resources:
Recommended Reading
Related Stories
- Jensen Huang: TSMC Helped Fix Design Flaw with Nvidia’s Blackwell AI Chip
- Pitch Deck: TensorWave raises $10M to build safer AI compute chips for Nvidia and AMD
- EnCharge AI Secures $100M Series B to Revolutionize Energy-Efficient AI Chips
- Amazon to Invest Additional $4 Billion in AI Startup Anthropic
- Wall Street Asks Big Tech: Will AI Ever Make Money?
Source: https://www.businessinsider.com/amd-downgraded-low-demand-ai-chips-aws-customers-2024-12