Investing.com -- HSBC on Monday downgraded Advanced Micro Devices to Hold from Buy, raising its price target slightly to $340 from $335, as the bank sees little room for the chipmaker to meaningfully beat market expectations despite strong demand for its server processors.

The revision comes ahead of AMD’s first-quarter results due Tuesday and follows a sharp rally in the stock. AMD shares have gained 77% since the beginning of April, driven by bullish server CPU demand expectations from agentic AI.

"However, we do not expect an upside earnings surprise from AMD’s upcoming 1Q26 earnings results, despite strong demand, contrary to Intel’s 1Q26 beat and guidance raise," HSBC analyst Frank Lee said in a note, as the stock has already priced in much of the good news.

"We expect limited upside opportunities for AMD to significantly surpass market expectations in 2026e in light of the recent share price momentum," he noted.

The core of HSBC’s concern is AMD’s dependence on TSMC’s manufacturing capacity, particularly at the 3-nanometer node used by both its current-generation MI350 GPUs and its fifth-generation Epyc Turin server processors. Lee expects that tightness to persist well into the first half of 2027, capping AMD’s ability to ship more units even as demand accelerates.

"We believe it will be difficult for AMD to gain additional capacity allocations beyond what was already assigned by the end of 2025," Lee wrote.

HSBC cut its 2026 AI GPU revenue estimate to $14.6 billion from $18.5 billion, citing supply chain uncertainty around the MI450 rack server ramp and softness in the MI350 product line during the transition period. That figure sits below the Wall Street consensus of $15.2 billion.

On the server CPU side, HSBC’s 2026 revenue estimate of $11.8 billion is 11% below consensus, as the bank expects unit growth to be capped at around 20% for the year.

For the upcoming quarterly print, he projects first-quarter revenue of $10.1 billion, in line with the top end of AMD’s own guidance, and second-quarter revenue of $10.5 billion, matching consensus.

The picture could improve in 2027, when TSMC is expected to bring additional 3-nanometer and 2-nanometer capacity online through fabs in Taiwan, Arizona, and Japan, Lee noted.

AMD’s next-generation MI450 GPUs and sixth-generation Epyc Venice processors are both slated for 2-nanometer production. However, Lee said better visibility on foundry allocation would be needed before turning more constructive.

"We believe we will need to see better foundry capacity allocation visibility emerge by late 2026 to have higher confidence in possible upside in 2027," Lee said.