AMD (Advanced Micro Devices) unveiled its ambitious plan to compete with industry giant Nvidia in the artificial intelligence (AI) market. The announcement came shortly after AMD’s quarterly outlook fell short of expectations, causing its shares to dip. The company has high hopes for its upcoming MI300X chip, aiming to disrupt Nvidia’s dominance in the data center AI chip market, a critical component for technologies like Chat Gpt.
During an investor call, AMD’s Chief Executive, Lisa Su, has revealed that “multiple, large hyperscale customers” have already committed to using the MI300 chips, referring to major tech and cloud computing companies that are on board. This boost in confidence has led AMD to increase its revenue forecast for the fourth quarter from $300 million to $400 million. Notably, this call also marked the first time AMD provided a sales projection for the MI300 chip in 2024, estimating about $2 billion in sales.
However, the positive outlook for the MI300 chip was countered by a somewhat lackluster performance in other segments, causing the company to miss Wall Street’s expectations for the fourth quarter. The company’s overall performance was severely impacted due to a decline in demand for programmable chips used in various industries, such as wireless communications, Healthcare, and Auto industries.
AMD’s Xilinx business, known for its high margins were negatively affected by Intel’s recent statement indicating a long-term decline in demand for programmable chips.
The expansion of U.S. sanctions on chip exports to Beijing will be another challenge on the horizon for AMD. These restrictions will force AMD to obtain licenses for selling its high-end AI chips in China, a move it plans to make in the fourth quarter. Additionally, the capital spending cuts by a key customer, Meta Platforms, could add to the company’s challenges.
Forecasts for the year
In its financial guidance for the current quarter, AMD forecasts revenue of around $6.1 billion, with a potential variance of $300 million. However, analysts polled by LSEG anticipate revenue to reach $6.37 billion, highlighting the company’s ongoing challenges. AMD’s adjusted gross margin is projected to be 51.5%, slightly below market estimates of 52.1%.
AMD’s adjusted revenue increased by 4% to reach $5.8 billion in the third quarter, surpassing earlier estimates of $5.7 billion. The company reported adjusted profits of 70 cents per share, exceeding analyst expectations of 68 cents per share according to LSEG data.
In terms of revenue segments, the data center business remained relatively steady at $1.6 billion during the third quarter. Meanwhile, the client segment, catering to the PC market, experienced a substantial 42% growth, achieving $1.5 billion in sales, signaling a revival in demand. However, the housing programmable chip segment saw a 5% decrease in revenue, falling to $1.2 billion. Gaming revenue also contracted by 8%, settling at $1.5 billion.
AMD’s strategic move to challenge Nvidia’s dominance in the AI market with the MI300X chip presents an exciting opportunity for the company, potentially unlocking substantial revenue streams. Nevertheless, the uncertain global economic landscape, export restrictions, and challenges in other business segments continue to pose significant hurdles for AMD as it strives to regain its competitive edge in the chip industry.