By Max A. Cherney and Arsheeya Bajwa
(Reuters) – Advanced Micro Devices on Tuesday raised its forecast for sales of artificial intelligence chips in 2024 by $500 million and said supplies will remain tight through 2025, sending shares of the Santa Clara, California-based company up 7.5% in extended trading.
The AI chips designed by AMD are largely being bought by cloud computing giants. Industry insiders and Wall Street see AMD’s line of AI chips as one of the few potentially viable competitors to market-dominating Nvidia. Shares of Nvidia rose 4.7% after AMD’s report.
AMD counts Meta Platforms among its customers, and Microsoft earlier this year launched access to a cluster of AMD chips for AI via its cloud platform.
Due to rising demand, AMD CEO Lisa Su said, the company raised its AI chip revenue forecast for 2024 to $4.5 billion from an earlier target of $4 billion. Supply of such chips will remain tight through 2025, Su said during a quarterly earnings conference call late Tuesday.
In the second quarter, AMD’s data center revenue, its largest segment, rose 115% to $2.8 billion, just above estimates of $2.79 billion, according to Visible Alpha. For the first time, quarterly revenue from AI chips — which are largely concentrated in the data center segment — topped $1 billion.
“We’re in the picks and shovels cycle, which is now more about hardware infrastructure,” said Ben Bajarin, CEO of Creative Strategies, who drew an analogy to the California gold rush, where mining tool vendors made more profit than some miners. “Most enterprises are spending money on AI software, but only to test and pilot programs,[and]haven’t fully implemented them yet,” Bajarin said.
Such massive spending has yet to yield substantial returns. And on Tuesday, shares of Microsoft fell 6% as growth in its cloud computing services missed targets, signaling that it may take longer for some Big Tech companies to reap the benefits of hefty spending on AI technology.
PC BUSINESS RECOVERY
According to data from LSEG, AMD is forecasting total revenue of $6.7 billion, plus or minus $300 million, for the third quarter, compared with the average analyst estimate of $6.61 billion.
On an adjusted basis, the company forecasts gross margin of approximately 53.5% for the third quarter, compared to estimates of 53.6%.
Total revenue in the second quarter rose 9% to $5.8 billion, beating estimates of $5.72 billion.
AMD, one of the largest PC chip suppliers, also benefited from a recovery in the PC market after its worst slump in years. Computer makers are hoping that new AI features will revive consumer demand.
“The PC business will perform better in the second half of the year, mainly because this is a seasonal trend,” said Jean Hu, chief financial officer of AMD.
According to Visible Alpha, AMD reported second-quarter revenue of $1.5 billion for PC chips, compared to expectations of $1.43 billion.
The company posted second-quarter adjusted earnings of 69 cents per share, which beat analysts’ estimate of 68 cents per share.
(Reporting by Arsheeya Bajwa in Bengaluru and Max A. Cherney in San Francisco; Editing by Devika Syamnath, Peter Henderson and Cynthia Osterman)
