AMD Emerges as a Strong Contender in AI Market

Advanced Micro Devices AMD is making headway in the AI space. Although NVIDIA retains its dominant position thanks to an early entry, AMD is steadily carving out a significant market share. NVIDIA currently boasts an estimated 95% of the AI data center market, while AMD takes the bulk of the remaining share. With a chance to reclaim lost ground due to NVIDIA’s surge, AMD stands to gain over 1000 basis points in market share growth. This increase, coupled with strong organic industry growth, could enhance revenue, profits, and shareholder returns. Encouragingly, industry growth continues to accelerate. AMD CEO Lisa Su significantly raised expectations during the investor day event, predicting a 60% compound annual growth rate (CAGR) over the next five years.

Rising Demand for AMD Chips Across Major Companies

Evidence is mounting for the growing demand for AMD’s AI-focused chips. Major companies like Hewlett Packard Enterprise HPE, Meta Platforms META, and Oracle ORCL are utilizing large quantities of these chips for advanced, low-latency HPC applications. Oracle recently announced a supercluster capable of linking over 16,000 MI300X chips, employing a suite of tools developed by AMD. Meanwhile, Hewlett Packard Enterprise plans to integrate eight MI325X chips and two EPYC CPUs in its latest servers, the HPE Proliant XD685, which are tailored for AI service providers and large model builders.

The ROCm software suite is pivotal to AMD’s success, akin to NVIDIA’s CUDA platform. It empowers programmers to leverage the strength of AMD’s GPUs for AI tasks. Despite NVIDIA being the first mover, AMD is well-positioned to bridge the gap, leading to accelerated results in the next four to eight quarters that may surpass market consensus, ultimately benefitting shareholders.

AMD’s Q3 Forecast Signals Steady Growth

AMD’s Q3 guidance reflects solid expectations, albeit with a conservative approach. The company anticipates $6.71 billion in net sales, marking a 15% increase compared to prior quarters; however, this growth lags behind the overall industry’s pace and its peers in AI. The data center segment, having demonstrated triple-digit growth in Q2, is expected to bolster AMD’s performance in Q3, despite a slowdown in both the client segment and a returning normalization in gaming revenue.

The data center business, accounting for nearly 50% of AMD’s revenue in the first half of the year, is poised for continued gains. Although gaming revenue may decline year-over-year in Q3, the rate of decline is expected to slow, paving the way for potential growth by 2025. Investors should also be aware of possible regulatory risks, as the U.S. government deliberates over export bans to certain countries, which could restrict global market opportunities.

AMD’s guidance will likely influence market activity regardless of its expected growth and performance in Q3. Analysts foresee another 15% increase in revenue for the year, with margins expected to widen—a projection that might underestimate actual consumer demand for AMD’s offerings. Noteworthy developments for calendar Q3 include the introduction of the Ryzen AI Pro 300 series chips, designed to enhance Microsoft Copilot AI Assist, offering speeds 40% faster than its top competitors and promising a 14% boost in enterprise productivity.

Market Analysts Anticipate AMD’s Q3 as Key for Growth

Analysts are optimistic about AMD’s stock, raising estimates while trimming earnings forecasts. Since late 2023, the consensus for AMD’s stock price has surged over 40% in advance of the Q3 earnings report, projecting a nearly 20% upside from the $160 level. Recent updates reinforce increased targets following Q2 and suggest a stock price range of $180 to $200 in line with market consensus. A strong earnings report could act as a catalyst for upward market movement.

After the October investor day and product announcements, AMD’s stock has experienced lackluster performance, declining nearly 10% from its recent peak. This trend may persist until the earnings report is unveiled. Traders and investors should watch for critical support around $152.50—if that level holds, it could present an attractive entry point; however, failure to maintain this support could see the stock drop toward $140, and potentially even $120.

The article “AMD Gains Momentum With AI: Can It Beat Expectations?” first appeared on MarketBeat.