While the bank still favors the narrative, it said investor expectations for the AI business still seem too high to them.

Analysts explain that the AI expectations don't leave room for much upside, even with a recovery in the core business. "We see limited upward
revision potential for AI from here," they wrote.

In addition, Morgan Stanley says AMD looks expensive relative to other large-cap AI plays, NVIDIA (NASDAQ:NVDA) and Broadcom (NASDAQ:AVGO), where analysts have more confidence in upward revisions to AI forecasts. The bank prefers NVDA and AVGO among large-cap semis.

Nevertheless, Morgan Stanley analysts continue to see AMD's product lineup as a share winner in the client and server CPU markets this year.