(Bloomberg) — Advanced Micro Devices Inc. predicts that its new AI chip, the MI300 processor, will generate $2 billion in sales next year. This optimistic outlook comes as a welcome sign that the strong demand for this component will offset the decline in orders for video-game equipment.
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AMD announced during a post-earnings conference call on Tuesday that the MI300 chip, set to compete with Nvidia Corp. products in the artificial intelligence accelerator market, will begin shipping in the coming weeks.
Early orders for the chip have been high, including from major cloud computing customers. AMD anticipates that it will bring in $400 million in revenue this quarter and reach $2 billion in sales for the entire year of 2024. It is also expected to be the fastest-ever AMD product to generate $1 billion in sales.
Chief Executive Officer Lisa Su expressed confidence in the market and the MI300 product, stating, “We think the market is huge. We’re playing to win, and we think MI300 is a great product. I’m encouraged with the progress we’re making with the hardware and software.”
Despite falling short of Wall Street estimates with its sales forecast, AMD’s positive outlook on the AI chip helped divert attention away from the disappointment. The company projected fourth-quarter revenue of $5.8 billion to $6.4 billion, while analysts had estimated $6.4 billion.
Chief Financial Officer Jean Hu explained that although demand remains strong, lower sales in the gaming segment would offset it. Additionally, the embedded market, which includes industrial, automotive, and networking systems, is expected to weaken further.
The initial sales forecast caused a temporary drop of up to 5.1% in AMD’s shares during late trading. However, after the AI remarks made during the conference call, the stock recovered most of the loss. Throughout the year, AMD’s shares have increased by 52%, benefiting from a broader resurgence in the chipmaker industry.
AMD is striving to catch up with Nvidia in the AI accelerator market, which involves processors used for advanced tools like chatbots. AMD’s new MI300 chip carries a lot of weight in this context. CEO Lisa Su has stated that the total market for such chips could exceed $150 billion by 2027.
She further emphasized the early stage of adoption for these chips during the conference call with analysts, who were primarily focused on the prospects for the MI300.
Read More: AMD’s New AI Chip Poised to Steal Earnings Spotlight
In the short term, AMD has seen a rebound in its traditional business of PC processors. The industry has recovered from a slump exacerbated by excessive inventory. AMD is currently the second-largest PC processor manufacturer after Intel Corp.
For the third quarter, AMD reported earnings of 70 cents per share, excluding certain items, exceeding the estimated 68 cents. Revenue amounted to $5.8 billion, slightly surpassing the projected $5.7 billion.
AMD’s PC chip division generated $1.45 billion in revenue, surpassing the $1.23 billion estimate, while data center sales reached $1.6 billion, just shy of the projected $1.62 billion. Gaming computer-related revenue reached $1.51 billion, falling short of the estimated $1.53 billion.
In addition to supplying chips to Sony Group Corp. and Microsoft Corp., which use them in their consoles, AMD is the second-largest provider of chips for add-in graphics cards that transform PCs into gaming machines. Demand for these products typically increases during the year-end holiday season, and orders for the necessary components would have already been placed by now. Nvidia is the market leader for PC add-in card chips.
AMD CEO Lisa Su acknowledged that sales for Sony and Microsoft console models, both launched in late 2020, are naturally declining. However, she noted that they are still selling at higher levels compared to previous generations of gaming machines.
AMD has experienced the negative impact of the weak embedded market alongside other chipmakers like Texas Instruments Inc., which reported a cooling demand for industrial semiconductors. AMD produces programmable chips used in networking gear, vehicles, and defense and space hardware.
AMD projected that there will be a sharp decline in demand from communication equipment manufacturers, particularly for 5G-related mobile-phone gear. In Europe, orders in the broader industrial market are weak as well.
Meanwhile, AMD, Nvidia, and Intel are in a race to establish their technology as essential in data centers, as part of a larger effort to capture new spending on AI hardware. Nvidia is currently leading in this competition and has seen its market valuation surpassing $1 trillion this year.
These chipmakers will also need to navigate new, stricter regulations regarding chip exports to China, which is the largest market for semiconductors. The US government has tightened restrictions in the name of national security.
(Updates with more details from conference call in 10th paragraph.)
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