Advanced Micro Devices (AMD 1.14%) has made a habit of impressing reviewers and customers alike with each of its Ryzen desktop CPU launches over the past five years. The problem the company is facing with its latest Ryzen 7000 chips is not that they aren't good products. They certainly are. The problem is that pricing is completely out of touch with reality.

Amazon ranks its top-selling CPUs, and the good news for AMD is that its products occupy the top two spots. The bad news is that these best sellers are last-generation Ryzen 5000 chips. The first Ryzen 7000 chip on the list is the high-end $699 7950X in the No. 16 spot. You must go down to the  No. 22 spot to find the next one, the $399 7700X. The mid-range 7600X, which goes for $299 and should logically be selling more units than its pricier siblings, falls into the No. 34 spot.

This is a single data point, but I think it's safe to say that the Ryzen 7000 launch has not been a rip-roaring success.

Competing with Intel and itself

The first major problem for AMD is Intel's (INTC -0.62%) Raptor Lake chips. Intel has taken an aggressive approach to pricing, and the result is a lopsided competitive landscape. Tom's Hardware ran Intel's 13700K chip through its paces, finding that not only did it beat AMD's entire Ryzen 7000 lineup in single-threaded tests, but that it was also 35% faster in multi-threaded workloads compared to the similarly priced 7700X.

Intel's price-to-performance advantage is even bigger than it appears because building a system around a Ryzen 7000 chip is also more expensive. Motherboards on the AMD side are pricy, and while AMD's Ryzen 7000 series requires DDR5 DRAM, Intel's Raptor Lake supports cheaper DDR4 DRAM. Factoring in the full cost of building a system, the pricing discrepancy grows.

On top of competing with Raptor Lake, AMD and its customers have an inventory problem. Demand for PCs plunged nearly 20% in the third quarter, leaving the supply chain with excessive inventory levels. AMD and its partners need to clear out last-gen Ryzen 5000 chips, and the only real option is aggressive price cuts.

The top-selling CPU on Amazon is the Ryzen 5600X, which is now selling for nearly 50% off list price. The No. 2 seller is the Ryzen 5900X with a steep 39% discount. Notably, the No. 3 seller is Intel's 13600K, a Raptor Lake CPU.

Customers with older CPUs looking to upgrade have little reason to choose AMD's latest chips. In addition to Raptor Lake being a better choice in nearly every scenario, rock-bottom pricing on last-gen AMD chips takes any remaining wind out of Ryzen 7000's sails.

Take the Ryzen 7600X as an example. Tom's Hardware found it delivered 25% faster single-threaded performance and 34% faster multi-threaded performance than the Ryzen 5600X. But as it stands today, the 7600X is nearly twice the price of the 5600X.

Price cuts are probably inevitable, but not for a while

Oversupply of its Ryzen 5000 chips has put AMD in a tough spot. The company needs to clear out those older chips, but cutting prices on its newer Ryzen 7000 chips would not help that cause. Unfortunately, without price cuts, Intel's Raptor Lake is the clear choice for most people looking to upgrade to a brand new CPU.

AMD is going to have to eventually cut prices on its Ryzen 7000 CPUs if it wants to prevent Intel from clawing back market share. There's just no way around it. But the company will likely have to wait until the inventory situation improves. Intel is also suffering from supply chain inventory issues, but the company seems to be weathering those better than AMD. The top four best-selling Intel CPUs on Amazon are all Raptor Lake models.

Once AMD clears out its older Ryzen chips and demand for PCs stabilizes, the company still must contend with Raptor Lake. Lose market share or cut prices, those are the two options. Either way, AMD's margins will be negatively affected.