Artificial intelligence: Amd challenges Nvidia's chips Uncertainty remains on the stock exchange

In the medium to long term, there is no match. The share price of Advanced Micro Devices(Amd), in the last twelve months according to Bloomberg terminal, gains (as of the close of 4/9/2024) only 27.16%. Competitor Nvidia, on the other hand, brings home an increase of 118.7%. Not only that. Since the beginning of the year and in the most recent six months, the stock market performance of the group led by Lisa Su has even been in the red: the shares are down 4.43% and 31.3% respectively. The chip star in artificial intelligence (AI), for its part, is up 114.5 and 23.5 per cent. Over the past month, however, the stock market narrative changes. Amd, managing to rise by 4.5%, joins Nvidia, which, in turn, is content with a 5.7% increase.

What happened? Firstly, since the end of July, there has been a stream of news about advanced micro devices that the market has valued positively. Of course! The stock suffered, as did the entire sector, from the negative events related to the stock markets in general. One among all: the fall at the beginning of August. Having said that, however, it is undeniable that investors have appreciated certain company-related events. The latter published second quarter figures, where revenues ($5.8 billion) beat the consensus ($5.7 billion was the expected revenue) and adjusted earnings per share (69 cents) were higher than expected. In addition, the guidance for the current quarter (6.7 billion +/- 300 million) positively surprised the stock market, which rewarded - in the wake of the bialy numbers - the stock. That stock rose (+4.5%) even on the day the ZT Systems shopping spree was announced. The investment (USD 4.9 billion in cash and shares, including some USD 400 million upon reaching certain targets) has profound strategic significance. ZT Systems is active in the design and production of servers and infrastructure for data centres. That is, the places where artificial intelligences are developed and trained also thanks to Amd's microprocessors. It is clear, therefore, how the group seeks, on the AI front and similarly to what Nvidia does, to propose an integrated offer to customers (especially hyperscalers), not limited to the chip alone. In particular, in the area of cloud computing. That cloud computing where, moreover, the company has previously made other extraordinary transactions: from the shopping spree in 2022 of the distributed computing start-up Pensando Systems to the acquisition of Europe's largest private AI laboratory (Silo Ai).

The project evidently relies on the continuous evolution of microprocessors. Thus, Amd is betting heavily on the Instinct family of graphic processing units (Gpu) (just think of the Instinct MI300 series). A type of semiconductor for which, in Q4 2024, the launch of the new AMD instinct MI325x accelerator (again for artificial intelligence) is planned. In view of this, it is hardly surprising that, in the second quarter, the revenues of the Data Centre division - which, among other things, includes precisely this type of hardware dedicated to AI - grew by 115 per cent to USD 2.8 billion. A leap forward caused also, and above all, by the microchip type in question.

In short: there is a strong bet on Artificial Intelligence solutions in data centres. Is this challenge paying off? If one listens to the company's indications, it would seem so. At the beginning of the year, the group had forecast around 3.5 billion in sales in 2024 precisely from data centre Gpu. In April, the target was raised to EUR 4 billion and, in the presentation of the latest quarterly report, the goal was further raised to EUR 4.5 billion (also thanks to Microsfot's decision to exploit Amd's Gpu in several of its products).

However, the saver asks the question: beyond the ability to generate revenues and profits with its products, is Amd really able to counter Nvdia's dominance? The experts - recalling the indiscretions on the hypothetical abuse of a dominant position that would have led the US Department of Justice to request information from the company led by Jensen Huang - emphasise one aspect. And, namely, that: the company's business is based on the 'platform' system. That is, Nvidia offers, in addition to hardware, other elements: from software solutions to services (the Cuda system). On the company's platform, third parties, or company partners, can, among other things, develop technology solutions. Test them, in a protected environment. In other words, Nvidia has created a large technological eco-system that is difficult for competitors to attack. Not least because, according to Mizuho Securities, Huang's group controls between 70 and 95 per cent of the market for chips used in the development and release of artificial intelligence. A market share that, inevitably, gives it considerable 'power pricing'.