AMD’s Q4 Review: Data Center Business Hits Scale
New AI GPU chip launch pulled ahead, PC sales momentum building up while questions about inventory levels linger.
«The 2-minute version»
Double Trouble? More Like Double Growth: AMD’s data center business nearly doubled in 2024, hitting $12.6B—an impressive surge fueled by AI demand. The MI300-series AI GPUs played a major role, bringing in $5B in just one year. That’s like opening a lemonade stand and outselling Coca-Cola in your first summer. CEO Lisa Su expects AI-related revenue to keep growing and is pulling forward the launch of its MI350 data center chip to cope with rising demand.
Unfortunately, the Market Has Trust Issues: Despite AMD’s impressive full-year results, Wall Street is sweating a potential *sequential* revenue dip in Q1 2025 that the mangement projected during its earnings call. Yet, AMD insists it’s just a short-term wobble as customers digest inventory before another strong growth phase.
PCs Aren’t Dead—Just on a Coffee Break: And that coffee break is set to end as the PC industry is expected to grow this year. This is great for AMD’s Client business, which has already started gaining momentum, signaling a long-awaited PC market recovery. Inventory levels remain high, but 2025’s anticipated demand should help margins improve. Ryzen chips are seeing stronger adoption, and AI-powered PCs could spark a bigger upgrade cycle. If your laptop is old enough to remember Windows Vista, AMD’s management thinks your PC might finally be due for an upgrade.💰😉
Valuation Blues: AMD vs. Nvidia: AMD trades at a noticeable discount to Nvidia, despite strong expected earnings growth. But if AMD sees improving margins and inventory levels, amid a strong demand environment, investors might rethink the premium. In other words, AMD is like a high-performance stock on the clearance rack—at least for now.
Buy the Dip? We’re In: Despite short-term noise, AMD’s long-term AI and data center strategy looks rock-solid. Management is confident, and so are we—more AMD stock is on our shopping list. The AI arms race is still in its early innings, and AMD’s execution suggests they’re playing to win, with significant upside ahead.
Let’s Set The Stage
Yesterday AMD AMD 0.00%↑ released its full year CY24 results, wrapping up its 2024 with a strong finish as the company’s data center business continued its trajectory of growing at almost 2x.
And AMD is far from being content with the growth trajectory of its data center business.
AMD’s head honcho, Lisa Su, announced on the Q4 earnings call that the company will be launching the next version of its flagship Instinct MI300-series GPUs, the Instinct MI350 series, sooner than originally planned.
In addition, AMD’s Client business segment continued its growth trajectories hinting at stronger signals that the global PC market could finally demonstrate the anticipated growth that most industry experts called for last year.
Plus, AMD also projected Q1 sales guidance that was above market estimates. But unfortunately, markets chose to focus on management commentary that hinted at possible sequential weakness in AMD’s Data Center’s business that could occur in H1 2025. What will likely complicate AMD’s outlook for now is a buildup of inventory at AMD’s end, which may also end up putting pressure on margins.
However, we continue to see appeal in AMD’s outlook over the next few years and find the company trading at attractive valuations given the compelling market share narrative in AMD’s data center business as well as its Client business.
AMD is still positively favored in our view, and we will be looking to increase our exposure to AMD over the next few days.
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AMD’s Data Center Business Hits Scale
AMD’s full-year 2024 results showed the company’s data center business has grown at an impressive pace to $12.6 billion, almost doubling from $6.5 billion that was reported by the company in 2023. In comparison to its data center business, the company’s consolidated revenues grew 14% y/y to $25.8 billion.
Yes, AMD’s data center revenue pales in comparison to rival Nvidia’s own data center revenue NVDA 0.00%↑ , which should be crossing the $100 billion mark in its upcoming Q4 earnings report later this month.
But even in the face of the semi-monopolistic competitive stance that Nvidia maintains, AMD gained significant ground in 2024 with the launch and sale of its MI300-series GPUs, acquiring and retaining deep-pocketed customers, including Meta Platforms META 0.00%↑ , Microsoft MSFT 0.00%↑, and IBM IBM 0.00%↑ . AMD’s robust performance in the data center was only possible because of strong reception of its MI-300 series AI accelerator chips that began with the global launch of the company’s first-ever MI300 product in late 2023, following it up with the MI325 last October to rival Nvidia’s Blackwell leadership.
In just one year, AMD has now generated $5 billion from the sale of its MI300-series AI-focused GPUs. That is impressive given that AMD had no data center GPU product in 2023. To put AMD’s AI accelerator sales performance in perspective, AMD’s AI accelerator chip sales now account for almost a fifth of AMD’s consolidated revenues, ramping up from zero in 2023, achieving critical business scale, and accounting for a meaningful portion of the company’s revenues.
However, management set expectations for its data center revenues to be sequentially down by ~6-7% in Q1 CY25. The sequential weakness means AMD’s data center Q1 CY25 revenues should be exceeding $3.6 billion, which on a y/y basis still implies 54-56% growth in its Q1 data center revenues—still quite strong.
However, markets are likely to focus on the sequential weakness in AMD’s data center over the next few days.
This is how we have modeled out AMD’s Q1 CY25 numbers based on management’s projections.