On some levels it is Advanced micro devices (NASDAQ: AMD) is starting to look more and more like a competitor Nvidia in the artificial intelligence (AI) accelerator market. While almost everyone considers Nvidia to be the dominant player in this market, AMD raised some eyebrows by winning a contract Oracle.
Yet despite all these accolades, AMD is barely profitable and revenue growth remains stuck in the single digits. Furthermore, despite the Oracle contract, AMD is not yet in Nvidia’s league when it comes to AI accelerators.
Nevertheless, one AMD metric has shown dramatic improvement. As that figure continues to grow, the semiconductor stock could take its place as a full-fledged Nvidia competitor in the AI accelerator market.
Where investors should look
The important figure is not so much the turnover from data centers as the turnover from data centers percentage of total turnover. Here’s why: In the second quarter of 2024, AMD’s $5.8 billion in revenue grew just 9% annually. But this figure is deceptive. Gaming revenues fell 59%, while embedded revenues fell 41%.
However, data center revenue, the segment that designs AI accelerators, increased by 115%! This is important because Nvidia’s data center revenue was 88% of the company’s total in the last quarter. Three years ago it wasn’t Nvidia’s biggest source of revenue. Now the same pattern appears to have appeared in AMD’s financials.
In the second quarter, the data center represented 49% of AMD’s revenue, compared to just 25% a year ago. Assuming AMD will follow in Nvidia’s footsteps, it appears AMD’s data center revenues will continue to grow rapidly.
Additionally, the chip industry is cyclical, meaning the gaming and embedded segments are unlikely to experience a revenue decline similar to last year’s. Both factors should ensure that AMD’s overall revenue – and, by extension, bottom line – is likely to experience dramatic increases, attracting more investors to AMD.
Ultimately, it is unlikely that AMD will become the market leader in the short term. However, as long as the data center segment continues to grow as a percentage of the company’s revenue, it should increase its share dramatically.
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Will Healy holds positions in Advanced Micro Devices. The Motley Fool holds positions in and recommends Advanced Micro Devices, Nvidia, and Oracle. The Motley Fool has a disclosure policy.
Every AMD stock investor should keep an eye on this issue, originally published by The Motley Fool
