Advanced Micro Devices Inc. (AMD, Financial) is in the spotlight because of a possible major deal with Amazon.com Inc. (AMZN, Financial).
An executive from Amazon Web Services, the prominent global provider of cloud computing services, has revealed it is contemplating utilizing cutting-edge artificial intelligence chips created by AMD. At an AMD event, the executive revealed this information while discussing the company's strategy for the AI market, which Nvidia Corp. (NVDA, Financial) currently dominates.
In discussions led by AMD CEO Lisa Su, the company delved into its approach to attracting prominent cloud computing clients. This approach entails providing customizable components that enable construction of powerful AI service systems.
Although there is no public commitment, Dave Brown, vice president of Elastic Compute Cloud at Amazon, has confirmed that AWS is actively evaluating the potential utilization of these chips.
These recent developments indicate a mounting interest among technology companies to diversify their AI development hardware.
While the deal has not been confirmed yet, its implications could be significant. However, even without this specific partnership, AMD's stock is worthy of inclusion in an AI-focused portfolio due to other favorable factors.
The price momentum is warranted
AMD has generated optimism in the market despite facing fierce competition from Nvidia and Intel Corp. (INTC, Financial). The company has set its sights on the lucrative AI and gaming market, which is projected to reach a total addressable market value of $150 billion by 2027.
Although its stock experienced a slight drop following the Data Center and AI event, where no major chip or partnership announcements were made, the company's potential for growth in the AI sector remains robust. Investors hope AMD can seize a significant share of the market, fueled by a growing interest in generative AI technologies.
Further, AMD has showcased resilience in its financial performance, with its revenue demonstrating a stable recovery in the first quarter of 2023. This positive trajectory has led analysts to revise their growth forecasts for the company's revenue in 2023 and 2024, further instilling confidence in its long-term prospects.
Despite trading below previous highs, the renewed confidence in AMD's ability to capitalize on AI opportunities has fueled a rebound in its stock. As the competition intensifies with industry giants like Nvidia and Intel, AMD's potential and presence in the AI and gaming market continue to inspire optimism among investors.
MI300 series launch and data center expansion
AMD's current position in the data center market for generative AI lags behind Nvidia, impacting its financial performance. However, it is a formidable competitor in the GPU chip market.
The company's latest launch of MI300 chips, expected to be priced at five times their production cost, positions it strongly. The MI300 series, including the MI300A (CPU+GPU) and MI300X (GPU only), is being sampled for customers and will enter production in the fourth quarter. These chips offer significant performance improvements, with AMD claiming an eight times boost in AI performance and a times times boost in AI performance per watt compared to the previous model. The MI300 also outperforms Nvidia's H100 chip in terms of bandwidth and capacity.
These factors solidify AMD's position as a strong contender in the AI chip market. The company is known for its competitive price-to-quality ratio in gaming graphics cards, while Nvidia dominates in professional solutions.
Further, AMD has made substantial gains in the data center CPU market, displacing Intel. The company is experiencing strong demand in the hyperscaler segment, with major cloud providers expanding their AMD deployments. The EPYC server processors, including the fourth-generation EPYC processors Genoa and Bergamo, offer cost savings and performance advantages, catering to the increasing demand for AI and cloud optimization.
AMD's foray into data center accelerators with the Instinct MI300, combining GPU and CPU capabilities, positions it as a competitor to Nvidia's A100 and H100 GPUs. The MI300 provides improved performance and efficiency for HPC and AI workloads. AMD's software stack for accelerated computing is strengthened by the acquisitions of Pensando and Xilinx, complementing its hardware.
Due to its strong performance and promising growth prospects, financial forecasts for AMD's Data Center segment and gaming business have been revised.
The revenue forecast for 2023 is $23.5 billion, showing a slight decrease compared to previous estimates, while the forecast for 2024 is $31.1 billion, indicating significant growth. AMD's first-quarter 2023 revenue in the gaming segment demonstrated stable recovery with a 7% increase from the previous quarter.
The company offers a competitive price-to-performance ratio, and investors should monitor the energy efficiency of the MI300 series. It is important to note that rapid development from competitors poses a risk to AMD's prospects, making it advisable to hold stocks for the long term.
Takeaway
At the beginning of the year, AMD found itself at a considerable disadvantage as Nvidia surged ahead in the realm of AI chips. It was a challenging position, but the company swiftly responded by redirecting all its resources and energies toward enhancing its capabilities in this crucial domain. As the year progressed, AMD's unwavering dedication and strategic focus on AI technology have garnered widespread attention from industry experts and analysts alike.
A deal with Amazon would be big news. However, that is not the main reason why the stock is appealing.
AMD's strategic shift and resolute efforts have demonstrated its commitment to delivering cutting-edge AI solutions. As a result, the market has taken notice of the company's remarkable turnaround and optimistic outlook, setting the stage for an exciting future in the realm of AI technology.
