Advanced Micro Devices (AMD.US) shares are trading up more than 8% today. This is due to yesterday's unveiling of the AI Instinct MI300X chip, which is expected to compete directly with Nvidia chips. Both Meta (META.US) and Microsoft (MSFT.US) and OpenAI have already stated that they will order new chips from AMD, which the market took as a strong signal of very strong interest and demand for the product in 2024. The company has doubled the expected value of the AI chip market. According to AMD's CEO, Su will be worth about $400 billion over a four-year horizon, compared to $200 billion estimated previously, indicating the very high corporate demand observed.
- MI300X could reduce the cost of training artificial intelligence models if it is good enough and cheaper. AMD estimates that the AI chip market will be worth $400 billion or more in 2027. This leads to the conclusion that even a single-digit market share for AMD, could bring the company a significant additional source of revenue by then.
- Nvidia shares are trading 2% higher slightly today, despite investors fear that the debut of an AMD product will put pressure on margins and end the company's total dominance, in the AI chip market. The main demand for AI chips is from the cloud computing sector, according to AMD remarks;
- AMD claims that the new chip is based on a new architecture that leads to significant performance gains. It has 192GB of high-performance HBM3 memory, which transfers data faster and can accommodate larger AI models.
- The company compares it directly with the H100 from Nvidia and stresses that the performance of its product will bring a better experience to corporate users due to its speed. To attract interest from major companies, AMD has improved its ROCm software suite to compete with CUDA software from Nvidia. CUDA according to many industry analysts was the reason why AI programmers prefer Nvidia.
AMD 'cautiously' estimates. The company wants to 'positively' surprise Wall Street in 2024?
- AMD has so far not revealed MI300X price, but Nvidia's chips could cost around $40,000 per chip, so AMD chip would likely have to cost less and be cheaper to service than an Nvidia chip to convince customers to buy and switch supplier. On the other hand, however, there won't be many major players in the market besides Nvidia and AMD, which means that the MI300X price won't have to be much lower to be profitable for buyers (of its performance will be comparable to Nvidia);
- Meta and Microsoft were the two largest buyers of Nvidia H100 GPUs in 2023, according to Omidia research. The sign that both companies have also expressed interest in the new line of chips could be seen as evidence of satisfaction with the H100 architecture. Also, OpenAI has indicated that it will use AMD graphics chips in one of its products called Triton, which is used in artificial intelligence research;
- AMD is still not forecasting huge sales of the chip. It estimates 'only' about $2 billion in total data center GPU revenue in 2024, leaving plenty of room for a possible positive surprise. To compare, Nvidia reported more than $14 billion in data center sales in Q3.
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