AMD forecasts quarterly revenue above expectations as AI chip demand stays strong

By Zaheer Kachwala and Max A. Cherney

May 5 (Reuters) – Advanced Micro Devices forecast second-quarter revenue above Wall Street expectations on Tuesday, helped by keen demand for its data-center chips as cloud computing companies accelerate spending on artificial-intelligence infrastructure. 

Shares of the company jumped roughly 5% in extended trading after surging about 60% so far this year. 

AMD is seen by analysts and investors as a leading challenger to Nvidia’s dominance in AI chips, commonly referred to as graphics processing units or GPUs.

But the company has tapped a new AI hardware opportunity in the form of central processing units as companies move from training models to running applications based on the technology, a process known as inference.

Sales for both types of server chips are recorded in AMD’s data center segment, which jumped 57% to $5.8 billion in the first quarter, whereas analysts expected revenue of $5.64 billion, according to data compiled by LSEG.

Earlier this year, AMD said it had agreed to sell up to $60 billion worth of artificial-intelligence chips to Meta Platforms over five years in a deal that allows the Facebook owner to purchase as much as 10% of the chip firm. AMD also struck a deal with OpenAI last year.

The company expects quarterly revenue of $11.2 billion, plus or minus $300 million, compared with estimates of $10.52 billion.

The company expects adjusted gross margins of about 56% for the second quarter, compared with analyst expectations of 55.4%.

For the first quarter, adjusted for stock compensation and other items, AMD reported per-share earnings of $1.37 on revenue of $10.25 billion. Analysts expected revenue of $9.89 billion and earnings of $1.29 per share.

While analysts perceive AMD as best-positioned to benefit from the surging CPU demand due to market share gains and product roadmap, competition from Intel, which gave a strong revenue forecast last month, has increased.

After struggling with its chip production for several quarters, Intel is now ramping up its in-house manufacturing efforts to cater to growing CPU demand, posing a threat to AMD, which is beholden to tight manufacturing capacity at Taiwan’s TSMC.

Unlike Intel, which designs and manufactures chips in-house, AMD outsources its manufacturing to contract chipmakers like TSMC. 

The semiconductor industry is also grappling with a global shortage of memory chips, stemming from a rush to secure supply of high-bandwidth memory used in data centers alongside GPUs and CPUs. 

The sharp increase in memory prices is also expected to hit demand for consumer electronics – a key market for AMD – as pricier computers are expected to turn consumers away. The company’s Client and Gaming segment, which includes its consumer hardware, rose 23% to $3.6 billion compared with a year ago.

AMD stock has far outperformed Nvidia’s year-to-date gain of 6% and the broader Philadelphia Semiconductor Index’s 48% rise, as of Monday’s close.

(Reporting by Zaheer Kachwala in Bengaluru and Max A. Cherney in San Francisco; Editing by Sriraj Kalluvila and Matthew Lewis)