Key Takeaways

• The Narrative is clearly shifting as concerns the AI product roadmap is weaker than expected
• AMD’s datacenter GPU business faces a muted growth outlook in 1H25, with revenue expected to be flat versus 2H24 ($5.1B total in 2024). While management expects acceleration in 2H25 with the MI350 launch, this more backend-loaded growth profile led most name-brand sell-side firms to lower their price targets.
• AMD continues to execute well in server CPUs, with market share reaching 32-33% exiting 2024 and analysts projecting a 38-39% share by the end of 2025. This is supported by strong customer traction for the Turin platform and Intel’s delay of Clearwater Forest.
• The company’s Q4 results showed strength in both traditional segments, with data center growing 9% QoQ and PC clients up 23% QoQ, demonstrating AMD’s ability to gain share in core markets even as it builds its AI/GPU business. However, both analysts view the current valuation (around 27-28x forward earnings) as fairly reflecting these opportunities, leading to their neutral stances.

Understanding the Narrative Shift and What it Means

In numerous industry conversations and our analysis of the competitive landscape, we have consistently emphasized AMD’s need to convince the market they are more than a CPU company. All eyes have been on the Instinct (MIXXX) line as the indicator of their AI roadmap. With the accelerator market growing at approximately 26% annually and generating an average of ~$42 billion per year just for AI accelerators/servers—projected to reach a TAM of ~$300 billion (excluding memory) in 2027—investors hope to see faster adoption of AMD’s Instinct line as a percentage of this revenue increase, driven by expanding hyperscaler CapEx in the data center sector.

Looking at the numbers, AMD’s Instinct line revenue (AI accelerator) will represent roughly 4-5% of the AI accelerator revenue in 2024. Management has expressed confidence in strong double-digit growth, and current estimates, informed by the supply chain, place AMD’s Instinct line in the $7-9 billion range. However, even with year-over-year growth, based on the current trajectory of the AI accelerator market in 2025, AMD’s Instinct line would still only represent 4-5% of the AI accelerator market. This stagnant market share is the root of investors’ financial concerns: while AMD’s AI accelerator business is growing, it is not keeping pace with the market’s overall dollar growth.

The GPU versus ASIC debate is central to understanding this narrative. When we discuss the GPU market, we primarily mean Nvidia, which controls ~90% of total revenue in the category while holding only ~45-50% of total units when including custom ASIC unit volume. For context, if custom ASICs are excluded, Nvidia’s unit share rises to 85-90%.

Currently, the biggest question concerning merchant silicon is whether there is a true GPU market or merely an Nvidia market. While there is a custom ASIC market, our current view suggests this market’s composition is unlikely to shift significantly in AMD’s favor unless the custom ASIC thesis fails to materialize. Currently, we have sufficient evidence that custom ASICs are well-suited for hyperscalers internal workloads primarily and select third-party custom workloads. However, GPUs’ advantages in parallelism, programmability, and flexibility—particularly in handling constantly evolving and increasingly complex AI software innovation—reinforce our conviction that GPUs will remain the standard for AI workloads across the majority of third-party software. While we believe AMD will continue to capture meaningful revenue as the AI accelerator TAM expands, whether that growth can match the market’s overall dollar growth remains uncertain.

CPUs Still Matter!

We think it is important to remember the CPU still has a role to play, in client and data centers, but specific to the AI accelerator narrative/trend and the outsized attention on AI servers, the CPU still has a crucial role to play and growth in CPU shipments and ASP need to be appreciated as well. When it comes to AMD CPUs data center trends on public cloud instances:

• AMD’s total instances were up 1% month-over-month (m/m) and up 33% year-over-year (y/y) in December 2023
• AMD processor instances were flat m/m and up 33% y/y, compared to the previous month’s growth of +1% m/m and +35% y/y
• AMD’s overall processor market share was 24%

AMD has also signaled when you combine internal and external instances, they have a 50% share at two US hyperscalers.  We believe those to be Azure, and Google (GCP) due to the strong double-digit share they have at both those clouds in public cloud instances.

We believe there is still innovation coming to CPU architectures as host processors to AI accelerators.  We think new generations of data center CPU architectures provide an opportunity for a new class of AI CPUs for the AI servers, which could command higher ASPs than traditional general-purpose server CPUs.  We view this opportunity as a net positive for AMD and Intel.

Specifics on the Quarter

AMD reported Q4 2024 revenue of $7.66B (up 12.3% QoQ, 24.2% YoY), slightly above consensus estimates, with gross margins of 54.1%. The results were driven by strong data center growth of 9% QoQ and better than seasonal PC client shipments (up 23% QoQ), partially offset by weakness in gaming and embedded segments.

For Q1 2025, AMD guided revenue to $7.1B (down 7% QoQ), slightly above consensus of $7.0B. The guidance implies data center revenue declining mid-single-digits QoQ, PC client and embedded declining low double-digits, and gaming declining low single-digits. Given this is a QoQ view, vs YoY view where we expect Q12025 to be up on all three categories, the QoQ decline is in-line with typical seasonality.

While AMD didn’t provide specific 2025 datacenter GPU guidance, management indicated datacenter GPU revenue will be 2H25 loaded, with 1H25 revenues expected to be roughly flat compared to 2H24. AMD achieved around $5.1B in data center GPU revenue for the full year 2024, with Q4 estimated at approximately $1.7B. Datacenter GPU revenue is projected to grow to $7-9B in 2025.

On the server CPU side, AMD exited 2024 with 32-33% market share and appears well-positioned to reach 38-39% share by the end of 2025, supported by strong traction of its Turin platform and Intel’s delay of Clearwater Forest.

Key concerns include the muted first-half 2025 data center GPU growth profile and execution needed around the MI350 ramp in the second half of 2025. However, we remain constructive on AMD’s server CPU share gain trajectory and competitive positioning versus Intel in 2025.

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