AMD Stock Surges After Rolling Out New AI Chip To Challenge Nvidia

Advanced Micro Devices (AMD) is the IBD Stock of the Day for Thursday as AMD stock surges back above a cup-with-handle buy point with significant trading volume. AMD on Wednesday unveiled a line of chips optimized for artificial intelligence, challenging AI kingpin Nvidia (NVDA) in a red-hot market.

Reaction from investors was muted Wednesday after AMD launched its Instinct MI300X line of accelerators. But AMD stock rallied more than 8% to 126.47 in recent trading on the stock market today. AMD previewed the chips in June and there were no major surprises Wednesday. AMD also faces a long road to challenging Nvidia. But analysts were positive on AMD following the event.

“We think part of what makes a good stock is the ability to dream — and this certainly fits the bill as AMD is still a fairly small company in very large markets,” UBS analyst Timothy Arcuri wrote in a note to clients late Wednesday.

AMD Stock: Challenging Nvidia

Santa Clara, Calif.-based AMD competes with Intel (INTC) in making central processing units, or CPUs, for personal computers and servers. But the firm is also a challenger to Nvidia in the market for graphics processing units, or GPUs, for PCs, gaming consoles and data centers.

At AMD’s event Wednesday, AMD Chief Executive Lisa Su said the firm’s newest chips offer industry-leading capacity and bandwidth. She portrayed AMD as well-positioned to handle the rapid growth of generative artificial intelligence products, sparked by the launch of OpenAI’s ChatGPT last year. So far, Nvidia’s H100 chip has dominated the lucrative market of powering AI applications.

The event kicked off AMD’s most significant effort yet to win part of that spending. During its Oct. 31 earnings call with analysts, AMD officials projected $2 billion in 2024 sales for the MI300x accelerators.

The company did not provide an upgrade to those estimates Wednesday to the disappointment of some analysts. But Raymond James analyst Srini Pajjuri says he sees room for upside for the target.

“Longer term, we see no reason why AMD cannot capture 10-20% share in the Gen AI accelerator market, which should drive double-digit top-line growth and margin expansion for the next 2–3 years,” Pajjuri wrote Wednesday.

Microsoft, Meta, Oracle Ready As Partners

AMD’s event featured appearances from executives with Microsoft (MSFT), Meta  (META) and Oracle (ORCL). The companies each said they are using the chips.

“Key customers included Microsoft, Oracle, and Meta but this was largely expected, as primary hyperscalers work to integrate a second source,” wrote Barclays analyst Tom O’Malley in a client note Wednesday. “MI300X will also be supported in OpenAI’s Triton 3.0 launch, their open-source programming language for AI, which should help bridge some of the software gap.”

The event did not feature appearances from cloud service providers Amazon (AMZN) and Google parent company Alphabet (GOOGL). But “we won’t rule them out as future customers for Instinct GPUs given AMD‘s strong existing relationships and its execution track record,” wrote Pajjuri for Raymond James.

AMD Stock: Chasing $400 Billion Market

While AMD did not update its sales forecast, it did provide updated estimates on the total market. AMD projects spending will surge 70% annually to reach more than $400 billion in 2027. That’s up from a previous projection of $150 billion.

Still, AMD has a lot of work ahead in challenging Nvidia. Last quarter, Nvidia recorded $18 billion in sales, compared to AMD’s $5.8 billion. NVDA stock has gained 213% this year compared to a more modest but still impressive 94% for AMD stock.

AMD’s “$400 billion+ estimate may prove extremely bullish/optimistic, but would probably be even more bullish for NVDA should such a thing actually comes to pass,” Bernstein analyst Stacy Rasgon wrote in a client note Thursday.

Still, analysts see AMD as benefiting from growing AI spending.

“Overall, the event did a better job of focusing on the growth of the AI industry, which should inherently help AMD as the pie grows,” O’Malley, the Barclays analyst, wrote.

AMD’s sales projection of $2 billion “is still a substantial ramp but we would expect the company to revise higher as the year progresses, largely as a function of an ecosystem desperate for a second source,” he added.