AMD Shares Climb 9% On AI Optimism Despite Lowering Guidance

Advanced Micro Devices (AMD) shares leaped more than 9% Wednesday after the company said it expects to sell $2 billion in AI-powered chips next year as it attempts to catch up to market leader and rival Nvidia (NVDA).

The company, which reported better-than-expected third quarter earnings yesterday, is projecting revenue of $6.1 billion (plus or minus $300 million) in the last three months of the year. That number is up from $5.8 billion for the third quarter but below the $6.4 billion analysts had expected.

However, according to some analysts, AMD's lineup of AI processors is more important than its embedded business—chips for industrial, automotive and networking sectors.

According to Wedbush Securities analyst Matt Bryson, the annual market for AMD's embedded business is less than $10 billion while rival Nvidia on its own is likely to exceed that number in quarterly GPU sales. So, the opportunity is big for AMD.

"In our view, meaningfully better growth expectations for AMD's AI products trump questions around where/when (Field Programmable Gate Arrays) FPGA sales will bottom and what is normalized revenue for AMD's embedded business," Bryson wrote in a note Wednesday. Field Programmable Gate Arrays are a type of circuit.

AMD Ramps Up AI Investments

AMD is ramping up its investments in artificial intelligence (AI) in an effort to catch up to rival Nvidia, which has become one of the world's biggest semiconductor companies with a market cap exceeding $1 trillion.

AMD's MI300 processor, which the company has described as "the world's most advanced accelerator for generative AI," could help the chipmaker catch up to its bigger rival. Sales of AI-powered graphics processing units (GPUs) are expected to reach $2 billion next year, AMD Chair and CEO Lisa Su said on the company's earnings call.

Su earlier this year called AI "the defining technology shaping the next generation of computing and the largest strategic growth opportunity for AMD," and said the company is "laser-focused on accelerating the deployment of AI platforms at scale in the data center."

Shipments of MI300 processors are expected to begin by the end of 2023, Su said at a product showcase in June.

With Wednesday's gain, shares of AMD are up almost 69% so far this year. While impressive, it's a small gain compared to those of rival Nvidia, which has almost tripled year-to-date and is the S&P 500's best-performing stock this year.