AMD bets on Data Center, AI growth after soft near-term forecast

Some data and comments from AMD’s fourth quarter 2023 earnings call this week seemed to back up the already prevalent feeling that 2024 is going to be a good year for the semiconductor industry and for data center AI chips in particular. Yet, a soft near-term outlook combined with lower-than-expected fourth-quarter and full-year revenue in some segments sent AMD’s stock downward after its earnings report.

By mid-day Wednesday, the day after its Q4 earnings report, AMD’s stock price stood at $165.99, down about 6% for the day.

Overall, for Q4 2023, AMD reported almost $6.2 billion in revenue, up about 10% year over year. This growth was mainly driven by success in server CPU and data center GPU sales, according to AMD CEO Lisa Su. Revenue from the company’s Data Center business hit a record $2.3 billion for the fourth quarter, up about 38% over the same period in 2022.

“Our Data Center GPU business accelerated significantly in the quarter, with revenue exceeding our $400 million expectations, driven by a faster ramp for MI300X with AI customers,” Su stated. “We launched our MI300 accelerator family in December with strong partner and ecosystem support from multiple large cloud providers, all the major OEMs and many leading AI developers.”

Elsewhere in Q4, Client segment revenue was up 62% year-over-year for the quarter to $1.5 billion, while Gaming revenue for Q4 was down 17% year-over-year to $1.4 billion, and Embedded segment sales for the quarter slid 24% year-over-year to $1.1 billion.

AMD also sees more bright days ahead for its Data Center GPU business, as Su said the company is adjusting its previous forecast for $2 billion in Data Center GPU revenue in 2024 upward to $3 billion for the full year. That upgraded GPU outlook comes after several research firms and market observers in recent months have forecasted solid growth for the chip sector in 2024.

For the full year of 2023, Data Center and Embedded segment revenue accounted for more than 50% of AMD’s overall revenue of $22.7 billion, but the total sales figure for the year was down about 4% compared to 2022 due to Gaming and Client declines on a full-year basis. Data Center segment revenue for the full year reached $6.5 billion, up 7%.

However, AMD believes Data Center segment revenue will be flat in the first quarter of 2024, and that belief combined with expected weakness for the same quarter in the Client, Gaming, and Embedded segments, has led the company to forecast $5.4 billion in revenue for Q1 2024, under analyst expectations of closer to $5.7 billion.

“We closed multiple wins with large financial, energy, automotive, retail, technology and pharmaceutical companies, positioning us well for continued growth, based on expanded production deployments planned for 2024,” Su said. 

Despite what is expected to be a soft start to 2024, Su said AMD is particularly excited about the early traction for its MI300 family AI chips and hopeful for the long term as AI continues to drive broader market demand.

“I think the ramp that we've seen, the customer traction that we've seen even in the last few months [with the MI300 products], I think has been great,” Su said. “And that gives us a lot of confidence in the ramp of this business. I think the beauty of the AI market here is, it's growing so quickly that I think we have both the market dynamic, as well as our ability to gain share in that framework. The point I will make is our customer engagements right now are all quite strategic, dozens of customers with multi-generational conversations.”

She continued, “So, as excited as we are about the ramp of MI300 and, frankly, there's a lot to do in 2024, we are also very excited about the opportunities to extend that into the next couple of years out into that '25, '26, '27 timeframe… We see a lot of growth. I think it's a little early to make market share projections, but I would say [AI is] a significant growth driver given the market demand, as well as our own product capabilities.”