Financial Report Preview | Analysts say AI chip market share is rising, AMD's data center business is expected to grow strongly

According to Zhītōng Finance, AMD (AMD.US) is set to announce its quarterly earnings after the U.S. stock market closes on Tuesday. Investors will be focusing on data center revenue and the semiconductor company's guidance on artificial intelligence chips. Wall Street expects the California-based chip design company to report earnings per share of $0.92 for the quarter, representing a 31.4% increase, while revenue is expected to grow by 15.7% year-on-year to reach $6.71 billion.

AMD, which counts cloud computing giants like Microsoft (MSFT.US) and Meta (META.US) among its clients, stated that its artificial intelligence chip revenue surpassed $1 billion for the first time in the second quarter due to surging demand for its AI chips.

Northland analyst Gus Richard anticipates that AMD's quarterly revenue will meet or exceed the high end of guidance, driven by growth in server CPU and client PC market share, as well as continued growth in AI revenue. Richard also noted that with strong momentum in the enterprise market and continued growth in AI market share, AMD expects revenue in the fourth quarter to surpass market expectations.

According to Oppenheimer's model, the company expects data center revenue in the third quarter to increase by 21% quarter-on-quarter and 114% year-on-year. Despite increasing demand for AI-focused GPUs, the company faces some supply constraints in the first half of 2024. However, with the launch of another GPU accelerator, MI325, and an optimized supply chain, the company has gained momentum.

Wedbush analyst Matt Bryson stated, "We believe AMD is best positioned to offer third-party products to replace NVIDIA's GPUs. We expect AMD's accelerator revenue to slightly exceed $10 billion, accounting for close to 5% rather than 10% of NVIDIA's revenue. Therefore, we believe AMD's data center GPU expectations can be met/exceeded."

In early October, Intel and AMD jointly established an x86 ecosystem advisory group, which will help developers focus on new ways to expand the x86 ecosystem and make software development easier. Over the past two years, AMD has exceeded earnings expectations 75% of the time and revenue expectations 88% of the time.

Institution Northland Capital expects strong performance and the possibility of gaining market share in server CPUs and AI accelerators next year. Analyst Gus Richard wrote in a report to clients, "We expect AMD's revenue to meet or exceed the high end of guidance, driven by growth in server CPU and client PC market share, as well as continued growth in AI revenue."

Richard has rated AMD's stock as "outperforming the market" with a target price of $175. He stated that in the past 90 days, "increasing evidence" suggests that AMD is taking market share from Intel (INTC.US) in the enterprise market, and there has been an improvement in demand for non-AI servers, consistent with the company's "significant market share momentum" in the data center AI segment Richard added, "We expect AMD's revenue in the fourth quarter to exceed market expectations, as their market share in artificial intelligence, server CPUs, and clients will continue to grow."

Richard also believes that with the resolution of the delay issues with NVIDIA's Blackwell series GPUs, AMD may take away market share in the AI accelerator market from NVIDIA.

According to analysts at Seeking Alpha and Wall Street, the stock is highly regarded and rated as "Buy". In the past 3 months, earnings expectations have been raised 7 times and lowered 26 times; revenue expectations have been raised 27 times and lowered 7 times.

So far this year, AMD's stock price has risen by about 6%, while the S&P 500 index has gained close to 22%