AMD shares to plunge more than 20% because they are ‘priced for perfection,’ Goldman says

An Advanced Micro Devices computer chip.
Ashley Pon | Bloomberg | Getty Images

Investors should avoid Advanced Micro Devices shares because the company will suffer from competition from Nvidia and Intel this year, according to Goldman Sachs, which initiated coverage on the chipmaker with a sell rating.

AMD shares are up 25 percent this year and 406 percent in the past 12 months through Wednesday on anticipation of its new gaming graphics and processor chips.

While the company's "execution (i.e. new product launches, cost management and BS [balance sheet] deleveraging) has improved under CEO Lisa Su, we believe current risk-return is unfavorable," analyst Toshiya Hari wrote in a note to clients Thursday entitled "Priced for perfection."

"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 added.

More In Pro News and Analysis

CNBC ProCathie Wood talks about her top disruptive ideas, including Netflix and Tesla
CNBC ProThird Point's Daniel Loeb is bullish because of easy policies. Here’s what he’s betting on
CNBC ProWharton's Jeremy Siegel explains why inflation may only cause a blip in bull run for stocks