By Zaheer Kachwala and Max A. Cherney
May 5 (Reuters) – Advanced Micro Devices forecast second-quarter revenue above Wall Street expectations on Tuesday, helped by keen demand for its data-center chips as cloud-computing companies accelerate spending on artificial-intelligence infrastructure.
Shares of the company jumped 12% in extended trading after surging about 65% so far this year.
AMD is seen by analysts and investors as a leading challenger to Nvidia’s dominance in AI chips, commonly referred to as graphics processing units or GPUs.
But the company has tapped a new AI hardware opportunity in the form of central processing units as companies move from training models to running applications based on the technology, a process known as inference.
AMD now expects the server CPU addressable market to grow at greater than 35% annually, reaching over $120 billion by 2030, CEO Lisa Su said on a post-earnings conference call. This is higher than the 18% yearly growth rate it forecast in November.
Sales for both types of server chips are recorded in AMD’s data center segment, which jumped 57% to $5.8 billion in the first quarter, whereas analysts expected revenue of $5.64 billion, according to data compiled by LSEG.
“AMD is levered to insatiable AI compute demand, and this quarter showed that demand is real, but the focus now shifts to how efficiently they can convert that into high-margin revenue,” said Jake Behan, head of capital markets at Direxion.
GROWING COMPETITION IN CPU MARKET
While analysts perceive AMD as best-positioned to benefit from the surging CPU demand due to market share gains and product roadmap, competition from Intel, which gave a strong revenue forecast last month, has increased.
After struggling with its chip production for several quarters, Intel is now ramping up its in-house manufacturing efforts to cater to growing CPU demand, posing a threat to AMD, which is beholden to tight manufacturing capacity at Taiwan’s TSMC.
Unlike Intel, which designs and manufactures chips in-house, AMD outsources its manufacturing to contract chipmakers like TSMC. Intel shares were up 4.5% in extended trading.
“It (AMD) may need to look to qualify Intel sooner than later for future products as that precious additional capacity will be needed based on the expedited success of NVIDIA’s AI roadmap,” said Daniel Newman, CEO of tech research firm Futurum Group.
Earlier this year, AMD said it had agreed to sell up to $60 billion worth of artificial-intelligence chips to Meta Platforms over five years in a deal that allows the Facebook owner to purchase as much as 10% of the chip firm. AMD also struck a deal with OpenAI last year.
The company expects quarterly revenue of $11.2 billion, plus or minus $300 million, compared with estimates of $10.52 billion.
It also forecast server CPU revenue to grow by more than 70% year-on-year in the second quarter.
The company expects adjusted gross margins of about 56% for the second quarter, compared with analyst expectations of 55.4%.
For the first quarter, adjusted for stock compensation and other items, AMD reported per-share earnings of $1.37 on revenue of $10.25 billion. Analysts expected revenue of $9.89 billion and earnings of $1.29 per share.
MEMORY CRUNCH WEIGHS ON DEMAND
The semiconductor industry is also grappling with a global shortage of memory chips, stemming from a rush to secure supply of high-bandwidth memory used in data centers alongside GPUs and CPUs.
The sharp increase in memory prices is also expected to hit demand for consumer electronics – a key market for AMD – as pricier computers are expected to turn consumers away. The company’s Client and Gaming segment, which includes its consumer hardware, rose 23% to $3.6 billion compared with a year ago.
Executives said AMD is planning for second-half PC shipments to be lower owing to higher memory and component costs, and expects second-half gaming revenue to decline more than 20% compared with the first half.
AMD stock has far outperformed Nvidia’s year-to-date gain of 5% and the broader Philadelphia Semiconductor Index’s 55% rise, as of Tuesday’s close.
(Reporting by Zaheer Kachwala in Bengaluru and Max A. Cherney in San Francisco; Editing by Sriraj Kalluvila and Matthew Lewis)
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