TLDR:
- AMD raised its 2024 Data Center GPU revenue outlook from $2 billion to $3.5 billion.
- Analyst Gus Richard predicts that AMD could capture more than 20% market share in the AI GPU market.
- Nvidia dominates the AI accelerator market, but AMD’s emergence with its MI300 provides a credible alternative.
- Richard believes that Nvidia’s relationship with TSMC may be strained by its shift to using Intel for advanced packaging needs.
- Richard rates AMD shares as outperform with a price target of $195.
The AI opportunity is becoming more evident for Advanced Micro Devices (AMD). That was clear during the chip giant’s recent earnings call when the company raised its 2024 Data Center GPU revenue outlook from over $2 billion to approximately $3.5 billion. The change in forecast is indicative of the company’s improved positioning in the space, says Northland analyst Gus Richard, an analyst ranked around the top 1% of Street experts.
“AI revenue is ramping faster than expected as customers quickly qualify AMD’s AI products, and AMD is aggressively ramping its supply chain to meet demand,” the 5-star analyst said.
Moving forward, while Richard thinks that over the near-term, AMD’s AI revenue generation abilities will be “production-limited,” he expects its share gains in the AI GPU market will accelerate. Over time, says Richard, AMD will “probably get more than 20% of the AI GPU market.”
The reasoning behind those higher expectations lies with AMD’s bigger rival. The AI accelerator market is currently thoroughly dominated by Nvidia, with the company claiming a 70% market share, with its main competitors being AI ASICs used by hyperscale Data Center operators.
In a way, Nvidia has created a bit of a problem for itself. Essentially, by introducing GPU as a Service, it is now “directly competing” with its cloud service provider customers and by doing so it is “fundamentally altering” its relationships with them. Moreover, it has a serious AI GPU markup of 5X to 10X, and that for instance yields gross margins between 80% to 90% on its H100 product.
This is where AMD can step in and make its presence felt. “The emergence of AMD’s MI300 provides a credible alternative, offering competitiveness and challenging NVIDIA’s software dominance through an open-source approach,” Richard explained.
Additionally, Richard predicts that Nvidia will begin utilizing Intel for some of its advanced packaging needs this year, potentially straining its relationship with TSMC. With Nvidia’s shift to the Intel 18A process by CY26, TSMC’s interests may align more closely with AMD’s. Consequently, Richard believes that AMD’s position as a second source will no longer be limited to a 20% market share.
So, all told, Richard rates AMD shares an Outperform (i.e., Buy), while his $195 price target implies shares will appreciate by 13% over the coming months.