AMD forecasts quarterly revenue above expectations as AI chip demand stays strong

[BENGALURU] Advanced Micro Devices (AMD) forecast second-quarter revenue above Wall Street expectations on Tuesday (May 5), helped by keen demand for its data-centre chips as cloud computing companies accelerate spending on artificial-intelligence infrastructure.

Shares of the company jumped roughly 5 per cent in extended trading after surging about 60 per cent 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.

Sales for both types of server chips are recorded in AMD’s data centre segment, which jumped 57 per cent to US$5.8 billion in the first quarter, whereas analysts expected revenue of US$5.6 billion, according to data compiled by LSEG.

Earlier this year, AMD said that it had agreed to sell up to US$60 billion worth of AI chips to Meta Platforms over five years in a deal that allows the Facebook owner to purchase as much as 10 per cent of the chip firm. AMD also struck a deal with OpenAI last year.

The company expects quarterly revenue of US$11.2 billion, plus or minus US$300 million, compared with estimates of US$10.52 billion.

The company expects adjusted gross margins of about 56 per cent for the second quarter, compared with analyst expectations of 55.4 per cent.

For the first quarter, adjusted for stock compensation and other items, AMD reported per-share earnings of US$1.37 on revenue of US$10.25 billion. Analysts expected revenue of US$9.89 billion and earnings of US$1.29 per share. 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.

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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 such as TSMC.

The semiconductor industry is also grappling with a global shortage of memory chips, stemming from a rush to secure a supply of high-bandwidth memory used in data centres 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 per cent to US$3.6 billion compared with a year ago.

AMD stock has far outperformed Nvidia’s year-to-date gain of 6 per cent and the broader Philadelphia Semiconductor Index’s 48 per cent rise, as at Monday’s close. REUTERS