Advanced Micro Devices has made headlines with its recent acquisition of Silo AI for approximately $665 million, emphasizing its commitment to expanding its AI arsenal. This move, slated for completion in the latter half of the year, is poised to fortify AMD’s AI capabilities and software proficiency.
AMD’s proactive approach in acquiring companies in the AI domain has been evident over the past year, with investments totaling $125 million in a string of acquisitions. Notable mentions include Nod.ai and Mipsology among others.
Silo AI, headquartered in Helsinki, Finland, caters to a diverse client base that includes renowned names like Allianz, Philips, Rolls-Royce, and Unilever. The company stands out for its development of open-source large language models, such as Poro and Viking, on AMD platforms alongside its SiloGen model platform.
By embracing Silo AI, AMD aims to close the technological gap with its rival NVIDIA in the relentless pursuit of AI supremacy. The acquisition brings on board Silo AI’s seasoned squad of scientists and engineers proficient in crafting tailored AI models, platforms, and solutions for top-tier enterprises in cloud, embedded, and endpoint computing sectors.
Performance Dynamics of AMD
Both AMD and NVDA have enamored investors with their soaring stocks, steered by the AI boom that has spurred a surge in demand for GPU chips vital for fueling AI algorithms. The anticipated robustness in the AI arena, fueled by intensified investments by tech giants like Microsoft and Alphabet, is expected to propel the sector to new heights.
Industry projections indicate a spectacular growth trajectory for AI software spending, with a Compound Annual Growth Rate (CAGR) of 19.1% from 2022 to 2027, reaching a staggering $297 billion by 2027. Deloitte further anticipates an exponential rise in enterprise investments in Generative AI (GenAI), with a projected 30% surge in spending as soon as 2024 from $16 billion in 2023.
AMD’s foray into expanding its product portfolio equips it to take on NVDA not just within the data center realm but also in the burgeoning AI-driven consumer PC market. Product launches such as the Instinct MI325X accelerator and the recently unveiled Ryzen AI 300 Series processors and Ryzen 9000 Series processors are earmarking AMD’s footprint in the data center and PC landscape.
Yet, amidst its product diversification endeavors, AMD grapples with macroeconomic uncertainties and the looming shadow of the upcoming Presidential elections, casting a gloom over its prospects. The intensified rivalry prompted by NVIDIA’s strategy of introducing new AI chip models annually forecasts heightened competition for AMD. The emergence of proprietary AI platforms by tech behemoths like Microsoft, Alphabet, and Meta Platforms poses further challenges for AMD.
Encumbered Prospects in Embedded & Gaming Sectors
Projections for the second quarter of 2024 paint a bleak picture for AMD’s Embedded and Gaming segments, anticipating a substantial double-digit revenue decline year over year. The Embedded revenues are expected to remain flat sequentially, while the Gaming segment is poised to witness a significant double-digit revenue slump.
The second-quarter estimates peg Embedded revenues at $847.4 million, signaling a sharp 45.7% decline from the previous year. Gaming segment estimates paint a grimmer picture, hovering around $661.94 million, indicating a massive 165.4% fall.
Steady Projections and Market Sentiment
AMD forecasts second-quarter 2024 revenues in the ballpark of $5.7 billion, with a mid-point growth projection of around 6% year over year and 4% sequentially. Consensus figures corroborate this growth trend, with revenue estimates at $5.71 billion representing a 6.54% uptick year over year, while earnings projections stand firm at 66 cents per share, showcasing a 13.79% year-over-year surge.
Implications and Future Outlook
AMD’s shares have seen a commendable 14% upswing in the past month, outperforming the Zacks Electronics-Semiconductors industry’s rise of 12.4% and the broader Zacks Computer & Technology sector’s growth of 4.7%. In contrast, NVIDIA exhibits a more modest 7.7% uptick over the same period.