Shares of Advanced Micro Devices (AMD -2.30%) lost half their value in 2022 amid slowing demand for chips used in personal computers (PCs), and the chipmaker could be in for a difficult time in the new year as well.

Though Wall Street seems to be upbeat about AMD stock's prospects over the next year -- as evidenced by a median price target of $85 per share that points toward a 20% upside from current levels -- there are a couple of reasons why the stock may not be able to live up to analysts' expectations. Let's take a closer look at them.

1. AMD is losing ground in the graphics card market

According to Jon Peddie Research, AMD's share of the discrete graphics processing unit (GPU) market stood at 8% in the third quarter of 2022. That was a big drop from the prior-year period's market share of 17%.

Discrete graphics cards are used in PCs to run games. The market was under stress this year thanks to weak PC sales, with discrete GPU shipments declining 41% year over year in Q3 to 14 million units. AMD was also troubled by Intel's entry into the discrete GPU market. Chipzilla controlled 4% of the discrete graphics card market at the end of the previous quarter, while AMD's traditional rival Nvidia (NVDA 2.63%) dominated the space with a whopping 88% market share.

Nvidia controlled 83% of the discrete GPU market in the third quarter of 2021. This suggests that Intel is growing at AMD's expense in this space, which is not surprising thanks to Chipzilla's aggressive pricing and competitive graphics cards. So AMD is now contending with two headwinds in discrete GPUs -- a shrinking market, and more competition in this niche.

The bad news for AMD is that its GPU revenue is expected to keep declining in 2023, dropping an estimated 7% from 2022 as per third-party estimates. Again, that wouldn't be surprising, as spending on PC gaming hardware shot up remarkably in the wake of the novel coronavirus pandemic, pulling forward demand in the process. Moreover, gamers reportedly cut back spending on gaming hardware and software amid high inflation and the possibility of a recession.

The chipmaker's revenue from the gaming segment -- which includes sales of both GPUs and semi-custom processors used in consoles -- increased 14% year over year in Q3 to $1.6 billion. However, the segment's performance was tempered by lower graphics card revenue, a trend that could continue in 2023 as well thanks to the reasons discussed above.

2. Nvidia's server processors are going to pose another challenge

The data center business was a bright spot for AMD in 2022, helping the company offset the weakness in the PC space to a large extent. In the third quarter of 2022, AMD's data center revenue jumped 45% over the prior-year period to $1.6 billion.

The segment's impressive growth was driven by robust demand for AMD's Ryzen processors, which allowed the company to gain more share from Intel in the server processor market. It is worth noting that AMD gained server market share for 14 quarters running. It finished the third quarter with 17.5% of this market under its control. The company reported a healthy year-over-year gain of 7.3 percentage points in this space last quarter.

AMD enjoyed a terrific run in server processors thanks to the technological advantage it enjoys over Intel. However, Nvidia's entry into the server processor market in 2023 could give AMD sleepless nights. In May 2022, Nvidia management pointed out that "dozens of server models" from various OEMs (original equipment manufacturers) will start shipping in the first half of 2023.

Also, the likes of Amazon, Meta Platforms, and Alphabet's Google can be expected to look at Nvidia's ARM-based Grace server processors, as they are designed to tackle workloads ranging from digital twin applications to cloud gaming to high-performance computing, all of which require high computing power along with efficiency. Nvidia is already claiming that its processors could outperform AMD, though investors should take this claim with a grain of salt and wait for third-party results.

But if Nvidia's server processors could give serious competition to AMD next year, then the latter could be facing a situation like what it is facing in the GPU space, where Intel started gaining some ground.

AMD could be staring at a big slowdown in 2023

AMD expects to finish 2022 with $23.5 billion in revenue, an increase of 43% over the prior year. The company toned down its guidance substantially, as it anticipated 60% annual revenue growth this year when it reported its second-quarter results in August. Investors should note that the acquisition of Xilinx, which finalized in February 2022, gave AMD's top line a big boost this year. Xilinx generated nearly $3.7 billion in trailing 12-month revenue before it was acquired.

The new year could be more disappointing for AMD investors, as its revenue is expected to increase just 6% to $25 billion, which doesn't seem surprising considering the challenges and headwinds discussed above. And with the stock trading at a rich 43 times trailing earnings, compared to the S&P 500's earnings multiple of 19, any more signs of weakness could send shares of AMD into a tailspin.

All this makes AMD a risky bet right now for 2023, and investors with a low appetite for risk may want to stay away from this tech stock.