Here's why HSBC analysts are giving up their bearish call on AMD's stock

HSBC upgraded AMD to a hold rating, citing potential upside from a $600 billion U.S.-Saudi Arabia investment deal, including AMD's $10 billion AI partnership with Humain, though near-term revenue impact remains unclear. The upgrade reflects a 7% stock increase since tariff de-escalation and a revised P/E ratio, with HSBC increasing 2026 GPU revenue estimates due to anticipated CoWoS allocation increases. While optimistic about AMD's client segment performance against Intel, HSBC anticipates a potentially subseasonal second half for the company.

Analysis

HSBC Global Research has upgraded Advanced Micro Devices Inc. (AMD) to a 'hold' rating from a previous 'reduce', signaling a revised perspective on the stock's prospects. This change is primarily attributed to long-term potential stemming from a $600 billion U.S.-Saudi Arabia investment commitment, which includes a $10 billion partnership between AMD and Saudi AI firm Humain to deploy up to 500 megawatts of AI compute power over five years. While this deal expands AMD's total addressable market, HSBC notes the timing and magnitude of revenue generation for 2025 remain unclear. The upgrade also considers AMD's stock performance, which climbed 7% since a U.S.-China tariff pause on May 12, leading to an improved P/E ratio of 29x for the full year; HSBC has consequently raised its target P/E for AMD to 26x from 20x. Rosenblatt Securities views the Saudi deal as a positive development that could partially offset the $1.5 billion revenue loss anticipated in 2025 due to U.S. export restrictions on AMD's MI308 chips to China. HSBC has increased its 2026 GPU revenue estimates for AMD from $6.6 billion to $7.8 billion, anticipating a 15% increase in CoWoS allocation for the Instinct MI350 chip series, which is expected to carry a pricing premium and enhance product mix. However, HSBC's 2025/2026 data-center revenue estimates remain 5%/6% below consensus, and the revenue potential for the upcoming Instinct MI400 series is yet to be quantified. Conversely, HSBC is more optimistic about AMD's client segment, where the company is seen as well-positioned to gain market share from Intel, whose pricing strategies have reportedly had no material impact due to AMD's competitive pricing and advanced CPUs. Despite a strong first quarter, HSBC anticipates a potentially 'subseasonal' second half for 2025, forecasting flat client revenue between the two halves of the year. Bank of America analysts also suggest AMD has 'sufficient room' in the AI accelerator market, projecting a 'credible 3%-4% share', supported by recent acquisitions and an improving software position, even with Nvidia's dominance. AMD's recent product unveilings at Computex 2025, including the Radeon AI Pro R9700 GPUs and Threadripper 9000 series processors, further bolster its AI capabilities. AMD's stock responded positively to these developments, rising 4.4% on Tuesday afternoon.

Key Decisions for Investors

• Investors should acknowledge the improved long-term outlook for AMD driven by AI advancements and strategic partnerships like the Saudi deal, but temper near-term revenue expectations given the current lack of quantifiable impact for 2025.
• Monitor AMD's ability to secure increased CoWoS capacity, which is critical for its 2026 GPU revenue targets, and closely track data-center segment performance against HSBC's below-consensus estimates and any signs of a subseasonal H2 2025.
• Consider AMD's competitive strength in the client CPU market against Intel and its potential to capture a niche share in AI accelerators, while remaining cognizant of ongoing U.S.-China trade restrictions and Nvidia's market leadership.