AMD's AI And Expansion Plans Hold Great Promise Of Catching Up To Nvidia

With intense PC market weakness that refuses to fade, Advanced Micro Devices Inc AMD delivered better-than-expected results on Tuesday as the chip maker continues aspiring to challenge the AI chip leader, Nvidia Corporation NVDA. Its rival Intel Corporation INTC posted a surprise profit and topped sales estimates last week.

Second Quarter Highlights

For the second consecutive quarter decline, second quarter revenue fell 18% YoY to $5.36 billion but still topped analysts’ estimate of $5.31 billion, according to Refinitiv. The resulting adjusted earnings amounted to 58 cents per share, slightly exceeding Refinitiv’s estimate of 57 cents per share. Net income tanked from last year’s comparable quarter when it amounted to $447 million, or 27 cents per share to only $27 million, or 2 cents per share.

As the PC market continues to struggle, AMD’s processor unit has slowed. As a result of the market slump, AMD’s client group, which includes sales from PC processors, melted 54% YoY to $998 million.

The data center segment dropped 11% to $1.3 billion due to lower server processor sales, with management elaborating that some cloud providers struggled with extra inventory.

Gaming, whose output consists of graphics processors for PCs along with chips for consoles like the ones that Microsoft and Sony Group Corporation SONY make, contracted 4% YoY to $1.6 billion. The drop could have supposedly been even worse if it wasn’t for the strong demand of semi-custom chips that are needed for Sony Play Station and other consoles like Microsoft X Box.

The segment that makes AMD’s less powerful chips, compared to the ones Nvidia makes, was the only unit that grew during reported quarter, 16% to be exact to $1.5 billion.

Weaker Than Expected Third Quarter Guidance

AMD management guided for revenue of $5.7 billion which is below the $5.81 billion that analysts expected. Data center and embedded divisions are forecasted to grow on a fiscal YoY basis, with a large ramp expected in the remaining half of the year.

AI Excitement

AMD remains one of the few companies making the high-end GPUs that are very much needed for AI so it is natural that AMD is aiming to turn this opportunity into a significant growth driver. AMD CEO Lisa Su revealed that the chip maker is investing more into AI-related R&D as it follows a strategy that includes AI-chips and software development. AMD is also hoping for AI to help PC chip sales, as it observes software providers such as Microsoft Corporation MSFT who is incorporating generative AI into its offerings. During the reported quarter, AMD revealed a new chip that is designed to power AI models such as the one behind the concept of Microsoft-backed Open AI creation, ChatGPT. The so-called MI300X chip is currently being tested by customers, with production scheduled to fully kick off in the fourth quarter.

Unlike Intel, GPU-heavy AI spending is expected to help AMD uplevel its game, although Nvidia has set the bar high and made it hard for others to compete. With its promising expansion plans, AMD is seen by many as the only viable rival that has a chance to catch up to Nvidia in the high-tech AI chips race, but over the next few quarter, AMD needs to deliver if it wants to be taken seriously on this quickly developing front, especially as there’s also the tech titan, Amazon.com Inc AMZN entering the race as it works to develop its own AI chips. If there’s something Amazon excels at, it’s at disrupting the field it chooses to enter so AMD has no time to waste.

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