AMD sees strong AI demand, revenue beats forecasts, shares surge 12%
AMD's Strong Performance in the Data-Center Segment
Advanced Micro Devices (AMD) has forecasted second-quarter revenue that exceeds Wall Street expectations, driven by robust demand for its data-center chips. This surge is attributed to cloud-computing companies increasing their investments in artificial-intelligence infrastructure. As a result, AMD's shares saw a significant increase of 12% in extended trading, following a year-to-date gain of approximately 65%.
AMD is recognized as a key competitor to Nvidia in the AI chip market, which is commonly referred to as graphics processing units or GPUs. However, the company has identified a new opportunity in the form of central processing units (CPUs), as businesses transition from training AI models to deploying applications based on this technology, a process known as inference.
During a post-earnings conference call, CEO Lisa Su highlighted that AMD now anticipates the server CPU addressable market to grow at a rate greater than 35% annually, reaching over $120 billion by 2030. This growth projection is higher than the 18% annual growth rate previously forecasted in November.
Rising Competition in the CPU Market
Despite AMD's strong position in the CPU market, competition from Intel has intensified. Intel recently provided a strong revenue forecast and is ramping up its in-house manufacturing efforts to meet the growing demand for CPUs. This poses a challenge for AMD, which relies on contract chipmakers like TSMC for manufacturing. In contrast, Intel designs and manufactures its chips internally.
Intel's shares rose by 4.5% in extended trading, reflecting investor confidence in its ability to compete effectively. Analysts suggest that AMD may need to consider qualifying Intel for future products to secure additional manufacturing capacity, especially given the rapid success of NVIDIA's AI roadmap.
Strategic Partnerships and Revenue Forecasts
AMD has entered into significant agreements with major tech companies. Earlier this year, the company announced a deal to sell up to $60 billion worth of AI chips to Meta Platforms over five years. This agreement allows Meta to purchase up to 10% of the chip firm. Additionally, AMD struck a deal with OpenAI last year, further solidifying its position in the AI market.
The company expects quarterly revenue of $11.2 billion, with a margin of $300 million, surpassing analyst estimates of $10.52 billion. AMD also forecasts server CPU revenue to grow by more than 70% year-on-year in the second quarter. The adjusted gross margins for the second quarter are expected to be around 56%, slightly above analyst expectations of 55.4%.
For the first quarter, AMD reported per-share earnings of $1.37 on revenue of $10.25 billion, outperforming analyst expectations of $9.89 billion in revenue and $1.29 per share in earnings.
Challenges in the Semiconductor Industry
The semiconductor industry is currently facing a global shortage of memory chips, driven by increased demand for high-bandwidth memory used in data centers alongside GPUs and CPUs. This shortage has led to a sharp rise in memory prices, which is expected to impact demand for consumer electronics—a crucial market for AMD.
AMD's Client and Gaming segment, which includes its consumer hardware, experienced a 23% increase in revenue to $3.6 billion compared to the previous year. However, executives have indicated that second-half PC shipments may be lower due to higher memory and component costs. They also anticipate a decline in gaming revenue by more than 20% in the second half compared to the first half.
Market Performance and Outlook
AMD's stock has significantly outperformed both Nvidia's year-to-date gain of 5% and the broader Philadelphia Semiconductor Index's 55% rise, as of Tuesday's close. This performance underscores AMD's strong position in the evolving AI and semiconductor markets.
