With the surge in demand for artificial intelligence (AI) chips, Advanced Micro Devices (AMD -3.65%) Although the company's AI-related business had not yet gained momentum in 2023, it has grown rapidly over the past year. That's probably because investors didn't want to miss out on a chance to take advantage of a rapidly growing market that was currently dominated. Nvidia.
AMD was late to enter the AI chip market in 2023 as tech giants lined up to buy Nvidia's graphics processing units (GPUs) to train large language models such as ChatGPT. However, AMD managed to tap into this lucrative market, which is expected to generate a whopping $384 billion in annual revenue in 2032, posting a compound annual growth rate of 38%. AMD management said last year that efforts in this business area should begin to bear fruit in 2024.
So far, Wall Street hasn't been happy with AMD's AI-related revenue outlook for this year (which was lower than expected). But there's more than meets the eye, and a closer look at the company's AI business shows it has the potential for significant growth this year.
AMD's AI guidance isn't that bad
Last October, AMD noted that it expects to generate $400 million in revenue from selling its MI300 series of AI GPUs in the fourth quarter of 2023. Last quarter marked the beginning of AMD's AI revenue growth with the MI300 processor family. It was released in December.
However, AMD CEO Lisa Su said during the company's Q4 2023 earnings conference call that AMD's “data center GPU business accelerated significantly in the quarter, and the Driven by MI300X acceleration, sales exceeded our expectations by $400 million.”
AMD says it is working with the following microsoft, meta platform, oracle, and other companies are deploying the MI300 Instinct family of data center GPUs. This explains why Su currently expects AMD's data center GPU revenue to surpass his $3.5 billion in 2024. This is a significant increase from his previous estimate of $2 billion and is a clear sign that customers are becoming accustomed to the company's new chips.
In other words, AMD's quarterly revenue run rate from its data center GPU business could reach nearly $900 million in 2024, according to the division's annual revenue forecast of $3.5 billion. That's more than double the revenue AMD earned from selling data center GPUs last quarter.
However, the company's guidance is below that target, with analysts expecting AMD to generate AI sales of $4 billion to $8 billion in 2024. However, smart investors should note that AMD has significantly increased its revenue outlook from sales of its AI chips in just one quarter. The company further raises its revenue outlook for AI as the year progresses, given that the company has “made significant progress working with supply chain partners and secured additional production capacity to support upward demand.” That's not surprising.
Why the company can continue to raise its AI guidance
Nvidia is the leader in the AI chip market with over 80% market share. However, AMD is expected to have a presence in this market in 2024, accounting for 15% to 25% of the AI chip market.
However, there are several factors that could help AMD capture a larger share in the AI chip space.
First, according to some people, digitimes According to reports, AMD could corner a significant portion of its foundry partners taiwan semiconductor manufacturing's advanced packaging capabilities will enable the production of more AI chips. More specifically, the Taiwanese publication predicts that AMD's share of TSMC's advanced packaging capabilities could be half that of Nvidia by 2024. If that turns out to be the case, AMD could account for a third of TSMC's AI chip manufacturing capacity.
Second, if AMD can produce a significant number of AI chips this year, it could potentially close the supply gap in this market. That's because Nvidia's AI processors reportedly have a waiting period of 9 to 12 months. Given the robust specs of AMD's flagship processor MI300X and its ability to provide stiff competition to Nvidia processors, consumers looking to get their hands on fast AI hardware may turn to AMD.
Raymond James analyst Srini Pajjuri expects AMD could ship 250,000 to 500,000 units of its MI300 Instinct data center chips this year. AMD hasn't disclosed the price of its latest AI chips, but it's entirely possible that they're pricing them competitively to win market share from Nvidia. Nvidia's flagship processor H100 will reportedly cost between $25,000 and $40,000 depending on configuration.
Assuming that AMD prices its AI processors at $25,000, the lower end of the H100 price range, and sells 250,000 units this year (based on Raymond James estimates), this market will generate $6.25 billion. has the potential to generate revenue. The high end of Raymond James' shipment forecast indicates AMD's data center GPU revenue could reach his $12.5 billion.
So it's entirely possible that AMD played it safe when announcing its AI-related revenue outlook for this year. As the company acquires more supply and customer commitment to deploying AI processors increases, it will likely continue to raise its AI revenue outlook as the year progresses.
Therefore, smart investors would do well to keep an eye on AMD's latest results, as AMD's burgeoning AI chip business is expected to lead to solid growth in 2024 and beyond. This is evident from the following graph.
AMD earnings forecast data for current year by YCharts
It's worth noting that AMD's annual revenue in 2023 was down 4% to $22.7 billion. Of this, only about $400 million comes from sales of AI chips. So given the strong growth in AI revenue, there's a good chance AMD can grow faster than Wall Street expected this year, which could help sustain this tech stock's long-term gains.
Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool's board of directors. Harsh Chauhan has no position in any stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Meta Platforms, Microsoft, Nvidia, Oracle, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
