AMD's opportunity in AI may be much bigger than first believed: Morgan Stanley
David Becker
AMD (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA) are the two biggest semiconductor companies in the GPU space, with Nvidia having a near monopoly at roughly 85% of the market, according to Jon Peddie Research.
But as AMD (AMD) continues to make headwinds in the space, not just for gaming, but also for artificial intelligence, the company's opportunity may be much bigger than initially imagined, Morgan Stanley said.
In a recent note, analyst Joseph Moore said that even though AMD (AMD) has historically had "false starts" in AI, higher price points for its upcoming MI300 chip and recent commentary from the supply chain are pointing to an opportunity that is "multiples" higher than initially believed.
"Our original estimate of $100 mm of AI revenue in [calendar 2024] (in addition to other data center GPU such as cloud gaming or supercomputer) was intended to be conservative - and AMD management commentary has also been circumspect - but the opportunity in formation is materially larger," Moore, who has an overweight rating and per-share price target of $97 on AMD (AMD), wrote in a note.
Moore now believes AMD (AMD) could generate $400M in AI revenue in 2024 and it could be as high as $1.2B if all goes right. While growth is likely to be "explosive" in the near-term, the Dr. Lisa Su-led company is also coming from outside the market, Moore added, placing it further in competition with Nvidia (NVDA).
On the company's most recent earnings call, CEO Dr. Lisa Su said it's still "early stages" for the AI era, but AMD (AMD) is in a "strong position" for the opportunity.
The company may have external help as it pushes further into AI.
Microsoft (MSFT) is reportedly working with AMD (AMD) on AI processors, though a spokesman from the Redmond, Washington-based tech giant denied that AMD is involved in the development of Microsoft's own AI processor, codenamed Athena.
Moore also noted that customers have been enthusiastic about AMD data center GPUs before, but given Nvidia's (NVDA) large position, it is likely the Santa Clara, California-based company will react "aggressively" to defend its turf. 
In addition, Moore believed that AMD's upcoming MI300 chip would have a "significant" discount to Nvidia's A100 (priced at about $9,000), but that may not be the case. Early indications are that the card may have an average selling price of about $10,000.
Conversely, Nvidia's (NVDA) newest AI chip, the H100, went on sale for $36,500 in 2022 and has recently sold for upwards of $40,000 on eBay and other third-party platforms due to high demand.
Moore also noted that AMD (AMD) has made the MI300 - believed to cost as much as $5,000 - "competitive" for inference applications at that price and the company is lightly customizing the chip for clients. 
AMD (AMD) may also have a bigger opportunity in training large language models, the topic du jour in light of recent publicity surrounding OpenAI's ChatGPT and Google's (GOOG) (GOOGL) Bard.
Large language models can be trained with CPUs (if no urgency for results or low-latency applications), but GPUs are needed if there is a latency requirement. Moore believes AMD's (AMD) opportunity in this space is "more tangible and durable than our initial expectations," and there are "solid" revenue forecasts from two of the four U.S. hyperscalers - Amazon (AMZN), Google (GOOG) (GOOGL), Microsoft (MSFT) and Meta Platforms (META) - with prospects for a third at levels that "materially" surprised him.
Led by CEO Jensen Huang, Nvidia (NVDA) is still likely to be aggressive in defending its position in these areas, but Moore added that AMD (AMD) is seeing "solid" orders from these customers and wins are "much more tangible" than in prior generations.
For AMD (AMD), the next step is likely an introduction of its cloud server CPU next month, but Moore added the company may give an overview of its AI strategy at the event. The MI300 is expected to launch in the fourth-quarter of the year, but given the sharp run in the stock this year (51% year-to-date), investors are anticipating strong results for AMD well ahead of the official release. 
And now, it looks as if Wall Street is starting to anticipate it too.
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