Investors analyze AMD’s AI strategy before Q4 earnings release

AMD is facing scrutiny from investors for its artificial intelligence strategy as they eagerly await the company’s fourth-quarter earnings report, set to be released on Tuesday. The tech industry’s shift towards custom silicon has raised questions about AMD’s position in the competitive AI infrastructure market dominated by Nvidia and other tech giants like Microsoft, Amazon.com, and Meta.

Analysts are projecting a significant spike in AMD’s revenue for the December quarter, expecting it to reach $7.53 billion, a growth of over 22%. Despite this positive outlook, concerns loom over Nvidia’s stronghold in the AI chip market and the trend of tech companies developing their own custom chips tailored to their specific needs, referred to as customer silicon.

The emergence of Chinese AI startup DeepSeek, showcasing models that rival or outperform Western counterparts at lower costs, adds to the uncertainty surrounding the projected expenses on AI infrastructure. This has contributed to a rally in chipmaker stocks, particularly for Broadcom and Marvell Technology, which provide hyperscalers with custom AI processors.

Companies like Microsoft, Amazon, and Meta are heavily investing in developing their custom silicon to meet the demands of GenAI, leading to an increase in AI chip sales for Broadcom and Marvell Technology. Broadcom CEO, Hock Tan, anticipates that AI could generate up to $90 billion in revenue by 2027, highlighting the potential growth in this sector.

Despite the competition, analysts remain optimistic about AMD’s future in the AI chip market, projecting sales of up to $10 billion in 2025. The company’s data center chip segment is expected to drive a significant portion of its revenue, with a forecasted jump of nearly 82% to $4.15 billion in the fourth quarter.

There have been challenges in meeting the demand for AI chips, with supply struggling to keep up. TSMC, a leading contract manufacturer, is working to increase capacity for advanced packaging, a critical component in AI supply chains. However, Nvidia’s ongoing production of its latest “Blackwell” AI chips could limit AMD’s access to manufacturing capacity, as pointed out by Mizuho analysts.

In addition to its success in the data center chip segment, AMD’s personal computer unit is forecasted to experience growth of around 33% to $1.94 billion. The company has been steadily gaining market share in the PC industry, posing a significant challenge to its competitor, Intel.

AMD’s fourth-quarter net income is expected to rise by more than 61.4% to $1.08 billion, reflecting the company’s overall positive performance in various business segments. As the tech industry continues to focus on developing advanced AI models, AMD remains poised to capitalize on this growing market trend, positioning itself for future success amidst stiff competition and evolving market dynamics.