Advanced Micro Devices Set to Unveil New Data Center Chips

Advanced Micro Devices (AMD) has benefitted from the hype surrounding artificial intelligence (AI).  The stock rallied to a 16-month high late last month and is up +87% this year, second to only Nvidia (NVDA) as the top performer in the Philadelphia Stock Exchange’s Semiconductor Index ($SOX).  Advanced Micro Devices hopes to add to its AI-induced rally when it unveils its new data center chips at an event next Tuesday in San Francisco.

Investors will get a peek next Tuesday at AMD’s new Epyc processor aimed at cloud computing. However, they will be more interested in the company’s MI300 processor, a purported rival to the H100 processor from Nvidia that runs AI applications.  Finimize Ltd, an investing insight platform owned by Abrdn Plc, said, “As to whether AMD could be successful in competing with Nvidia, it basically comes down to waiting and seeing, and maybe buying both AMD and Nvidia” as AI plays.

A benefit that AMD has over Nvidia is a lower valuation.  AMD trades at 7.8 times projected sales for the next 12 months, less than half of Nvidia’s 20 times projected sales.  Investors have jumped into Nvidia and AMD, hoping to cash in on the AI hype after Nvidia CEO Huang said companies would need to replace $1 trillion of data-center hardware worldwide with gear more suited to AI computing.

Some analysts remain wary of the unabashed bullishness for Advanced Micro Devices.  The latest monthly sales data for April from the Semiconductor Industry Association came in below seasonal trends, with Morgan Stanley saying volumes for memory chips “were surprisingly weak in April, likely pointing to another back end loaded” quarter.  Morgan Stanley is concerned about the sluggishness in AMD’s server business, saying in a research note that “current portfolios are not a meaningful beneficiary of the AI surge, even though it is helping portions of their business.” 

It remains to be seen how long investors will wait for AMD to show concrete evidence it is profiting from the AI craze.  In recent years, AMD has taken on Intel (INTC), carving out 18% of the server market for chips, one of the most profitable areas of the semiconductor industry.  However, Jans Henderson said the battle with Nvidia for a slice of AI-driven sales won’t be easy as “Nvidia is executing pretty flawlessly, so it’s a much tougher competitor for AMD than Intel was.” 

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.