Investors are getting too optimistic about AMD's prospects, according to Northland Capital Markets.

The firm lowered its rating on AMD shares to market perform from outperform, predicting Intel will eventually improve its chip offerings.

"When we originally picked up AMD in June of 2015, the slowing of Moore's law, a strong design team, a strong IP position and talented CEO [led] us to believe that AMD would once again challenge INTC. Our thesis hasn't changed, valuation and sentiment has," analyst Gus Richard said in a note to clients Thursday. "We think the shares price reflects irrational expectations."