AMD forecasts $2 billion sales of AI chips, helping shares rebound

5:51 pm Tuesday, October 31st, 2023

By Chavi Mehta and Stephen Nellis

(Reuters) -Chip designer Advanced Micro Devices on Tuesday forecast $2 billion in sales in 2024 from a chip that aims to compete with Nvidia in the artificial intelligence (AI) market, helping shares recover after a quarterly outlook missed expectations.

AMD forecast fourth-quarter revenue and gross margins below Wall Street estimates, hurt by a weak gaming market as well as a decline in demand from some industries for its programmable chips.

Shares of the Santa Clara, California-based company fell as much as 4.6% in after-market trading but turned roughly flat after executives disclosed on a conference call the outlook for its chip to compete with Nvidia. AMD is readying a chip called the MI300X it hopes will loosen Nvidia’s grip on the market for data center AI chips used to create technologies similar to ChatGPT.

During a call with investors, AMD Chief Executive Lisa Su said that “multiple, large hyperscale customers” had committed to using MI300 chips, using a term that commonly refers to large tech and cloud computing companies.

The company said it expects $400 million in revenue from the chip in the fourth quarter, up from the $300 million forecast the company had given in August. Su gave investors a 2024 sales forecast for the first time for the MI300 chip, of $2 billion.

But weakness in other segments left the company short of Wall Street expectations for the fourth quarter.

While the PC market is in recovery mode, demand for programmable chips used by industries such as wireless communications, healthcare and automotive has slowed down.

Intel last week said it expects demand from that segment to decline and stay down for the “next few” quarters. That same slowdown appears to be hitting AMD’s Xilinx business for programmable chips, which is known for its high margins.

Analysts said the recent expansion of U.S. sanctions on chip exports to Beijing will require AMD to seek licenses to sell its most high-end artificial intelligence chips to China, which it plans to launch and ramp only in the fourth quarter.

Moreover, capital spending cuts by key customer Meta Platforms could also weigh on the company.

AMD forecast current-quarter revenue of about $6.1 billion, plus or minus $300 million. Analysts polled by LSEG expect revenue of $6.37 billion. AMD forecast adjusted gross margins of 51.5%, slightly below estimates of 52.1%, according to LSEG data.

Adjusted revenue in the third quarter rose 4% to $5.8 billion, compared with estimates of $5.7 billion. Adjusted profits were 70 cents per share, above analyst estimates of 68 cents per share, according to LSEG data.

Revenue at its data center business was roughly flat at $1.6 billion in the third quarter, while sales at its client segment, which caters to the PC market, rose 42% to $1.5 billion, signaling rebound in demand.

Revenue at its embedded segment, housing programmable chips, fell 5% to $1.2 billion, while gaming revenue fell 8% to $1.5 billion.

(Reporting by Chavi Mehta in Bengaluru; Editing by Krishna Chandra Eluri, Jonathan Oatis and Rod Nickel)