How AMD Is Gaining Ground in the AI Chip Market and What It Means for Investors

Stock Market

Don’t sleep on Advanced Micro Devices (NASDAQ:AMD). The microchip and semiconductor company is fast becoming a leader in the market for advanced artificial intelligence technologies and taking market share from competitors in the process. This article will touch on the great reasons you should invest in AMD stock.

While much of the discussion around AI chips and semiconductors continues to be dominated by market leader Nvidia (NASDAQ:NVDA), AMD is gaining ground on its archrival and quickly closing the gap when it comes to both market share and the technologies that are powering advances in AI applications and large language learning models.

One Chip To Rule Them All

While Nvidia remains out front in the AI race, controlling 70% of the market for AI microchips, AMD has been closing the gap, mainly by taking market share from another main competitor, Intel (NASDAQ:INTC). Since 2021, AMD’s share of the Data Center segment including the graphics processing units (GPUs) that are used to power AI models such as ChatGPT has nearly doubled to $1.3 billion. At the same time, Intel’s share of that market has shrunk by 40%.

Advanced Micro Devices could dramatically close Nvidia’s lead in AI chips with the upcoming release of its new AI microchip called the “MI300X,” which it plans to begin shipping to customers in the current fourth quarter. The MI300X marks the company’s biggest foray into AI yet and is a direct challenge to Nvidia’s chips. The MI300X can use up to 192 gigabits of memory, which means it can accommodate bigger AI models than other chips, notably Nvidia’s rival H100 chip that supports 120 gigabits of memory.

AMD executives have said that AI represents a strategic growth opportunity for the company and that the MI300X chip has been designed specifically for large language models and other generative AI applications. AMD is also developing its own software for its AI chips called “ROCm.” Analysts anticipate the MI300X chip to be a big hit for AMD and propel the company into the front ranks of AI chipmakers. Anticipation for the new chip is running high.

Cozying Up To Microsoft

AMD is also building a closer relationship with Microsoft (NASDAQ:MSFT), the tech giant that has invested more than $10 billion in ChatGPT creator OpenAI and has incorporated generative AI technologies into its Bing search engine. AMD stock rose nearly 5% in one trading session at the end of September after Microsoft’s chief technology officer (CTO) praised the chipmaker and said that it is enhancing its position in the realm of AI.

“They’re making increasingly compelling GPU offerings that I think are going to become more and more important to the marketplace in the coming years,” said Kevin Scott, Microsoft’s CTO at the influential Code Conference. Microsoft has long been a user of AMD chips, including in its Azure cloud computing unit and to power its Xbox video game console. There are rumors that AMD and Microsoft are partnering on the development of a custom AI chip, though neither company has confirmed if that’s true and no chip has emerged.

Strong Earnings

Another compelling reason to consider a position in AMD is the company’s consistently strong earnings. AMD most recently reported Q2 financial results that beat Wall Street forecasts on the top and bottom lines. AMD reported earnings per share of 58 cents versus 57 cents that was expected among analysts, according to Refinitiv data. Revenue in the April through June period totaled $5.36 billion compared to $5.31 billion that was anticipated.

Looking ahead, AMD said it expects $5.70 billion in Q3 sales, that it is increasing its AI research and development (R&D) budget, and has developed a strategy that includes more AI-specific chips and software. The company expects full production of its MI300X microchip to ramp up now in Q4, with sales reflected in its earnings prints beginning early next year. AMD next reports its Q3 earnings for this year on or around October 31.

Buy AMD Stock

AMD stock has proven to be a good investment for a long time now. The company’s share price has increased 65% year to date, gained 83% over the last 12 months, and risen 301% over five years. With the company pushing hard into AI, developing cutting-edge technologies, and taking market share from key rivals, there’s every reason to believe that this stock will continue powering ahead for the foreseeable future. AMD stock is a buy.

On the date of publication, Joel Baglole held long positions in NVDA and MSFT. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.