Shares of Advanced Micro Devices (AMD) opened more than 5% lower Thursday—eventually slipping more than 9% in early morning trading—following the release of a key analyst note.

Today’s Warning

Analyst Toshiya Hari of Goldman Sachs initiated coverage on AMD with a “sell” rating and a 12-month price target of $11, which would represent a 22% slide from Wednesday’s closing price.

Although Hari credited the company for improving its execution of strategic initiatives under CEO Lisa Su, the analyst cited concerns that the stock has already priced in improvements in its competitive position. Hari also warned that AMD’s primary competitors, Intel INTC and NVIDIA NVDA, would likely fight back if the company did steal some market share.

“If AMD were to gain meaningful traction with its new products (e.g. Ryzen CPU, Naples CPU, Vega GPU) in 2017, we believe Intel and Nvidia would be likely to fight back in late-2017 and/or 2018 in the form of pricing concessions,” he said.

AMD has been a darling stock for the past year or so, gaining more than 400% over the last 52 weeks. Nevertheless, Hari expects AMD to underperform the market after its investor day in May.

Project Scorpio

The analyst’s warning comes on the same day that Microsoft MSFT revealed the technology inside its next Xbox system, codenamed “Project Scorpio.” Integral to the new console will be Microsoft’s new Scorpio Engine, a “system-on-chip” that was designed alongside AMD.

There were some rumors that Project Scorpio would feature AMD’s new Ryzen CPU technology, but that doesn’t seem to be the case. Last month, shares of slid after an unfavorable review of the Ryzen 7’s PC gaming performance.

Bottom Line

AMD remains a Zacks Rank #2 (Buy). The company has seen positive earnings estimate revisions, and our current consensus estimates suggest that this will be a year of impressive EPS and sales growth. While short-term volatility is always a possibility, there is plenty of strength here.

Which Stocks are Zacks Experts Talking About?

Stocks in today's headlines may be tempting buys, but how would you like a sneak peek at the stocks Zacks experts recommend? Starting today, for the next month, you can follow all of Zacks' private buys and sells in real time. You can track value and momentum stocks, ETFs, stocks under $10, options moves, insider trades, and stocks set to report positive earnings surprises (we've called them with 80%+ accuracy). 

http://finance.yahoo.com/news/apos-why-advanced-micro-devices-162004711.html

Analyst & stockmarket.... I dont get you guys.

So he's putting AMD down because, all of a sudden, he has realised that Intel and Nvidia do compete with AMD and will try to fight back the marketshare that AMD has gotten back from them?

Wow, being this kind of analyst is sure a hard job...

Makes sense. To sum up the article, the author warns the more bullish investors not to inflate the price of a stock without taking into account what the competition has stored up to combat the line of products AMD just released.

(And if you've been following the AMD drama for a while, one would get the truth to this warning because AMD has been playing catch up to Intel and Nvidia for quite sometime now.)

I think pricing is a little higher than expected and performance a little lower from their new chips and I think there was a little bit too much hype regarding them so this is just a logical adjustment now that reality has hit home.

Just a reaction, but will stabilize out like stocks normally do :p

He could have just said the stock's overpriced.

The drop has nothing to do with Scorpio outside of the timing.

Its also not that uncommon for a stock to drop like this a week or two before a quarterly earnings report. For anyone looking to get in, or gain a larger position, now is the perfect time to buy if your outlook on AMD is strong. If AMD's profits end up high or higher than expected, the stock will soar again.