Advanced Micro Devices (AMD -0.21%) has made a stunning comeback over the past five years. Through multiple generations of Ryzen PC CPUs, the company has steadily gained market share from Intel (INTC -0.97%) while growing revenue and profit considerably. Even after being pummeled this year, AMD stock is up nearly 400% over the past five years.

AMD is now facing two major problems. The first is largely out of its control: Demand for PCs is plunging, leading to inventory corrections across the supply chain. AMD now expects its organic revenue to essentially flatline in the third quarter.

The second problem is Intel's new Raptor Lake CPUs. With Intel boosting core counts and pricing aggressively, AMD's latest Ryzen CPUs are simply overpriced. In a tough PC market, that's not going to go well.

Good at more than just games

Intel's chips have always been strong when it comes to single-threaded performance, which is extremely important for PC games. Modern games can make use of multiple CPU cores, but only to a point, and it varies widely depending on the game. For the most part, going beyond six or eight cores yields no benefit for PC gaming.

Other types of applications can scale across a far larger number of cores. One part of AMD's strategy with Ryzen has been to offer more cores for less money than Intel. For anyone doing video editing, 3D rendering, or using any other type of productivity or creative application that scales well with core counts, Ryzen has been a boon.

Intel's Raptor Lake puts an end to AMD's advantage in multithreaded workloads. AMD's latest Ryzen 7000 series chips still perform well overall, but Intel's pricing gives Raptor Lake a meaningful advantage.

A review from Tom's Hardware of Intel's i7-13700K, a $409 CPU, puts Intel's advantages on display. Intel has been able to boost core counts by using a mixed core architecture.

The 13700K features eight powerful cores and eight weaker cores, which together deliver 24 threads. The comparable product on the AMD side is the Ryzen 7 7700X, which goes for $399. The 7700X has eight cores, all the same, and 16 threads.

In gaming benchmarks, the 13700K beats all Ryzen 7000 series chips at stock settings, and that lead grows when the chip is overclocked. In multithreaded applications, those extra cores deliver a massive advantage. Across all the multithreaded benchmarks run by Tom's Hardware, Intel's 13700K was 35% faster than AMD's 7700X.

AMD's pricier chips with more cores deliver greater performance, but they're also far more expensive. The 13700K just barely loses out to AMD's $549 7900X in multithreaded tests, so it delivers vastly better performance per dollar.

A deeper pricing problem

Tom's Hardware didn't mince words toward the end of its review: "AMD will need to reduce pricing on its Ryzen 7000 models now to stay competitive with Raptor Lake."

AMD's pricing problem is actually worse than it looks. Not only are its Ryzen 7000 chips overpriced, relative to Raptor Lake, but building a system around them is more expensive. Ryzen 7000 chips aren't compatible with motherboards that support previous generations of Ryzen chips, and those new motherboards are expensive. On top of higher motherboard costs, Ryzen 7000 chips require DDR5 memory, while Raptor Lake supports both DDR5 and cheaper DDR4.

AMD expects sales in its client segment, which includes PC CPUs, to tumble 40% year over year in the third quarter as customers work to reduce inventories amid sluggish demand. Given that backdrop, AMD probably won't have much of a choice but to drop prices for its Ryzen 7000 CPUs if it wants to hold onto the market share it's won from Intel.