In Spite of Wall Street's Skepticism, AMD Could Still Be a Sleeper Against NVIDIA

On Tuesday, Advanced Micro Devices Inc. (AMD) executives made some assertive claims regarding the company's AI accelerator chip, positioning it as a formidable challenger to Nvidia Corp. However, Wall Street analysts were not overly impressed, as AMD's updated forecast for AI chip revenue came in at $5 billion, which met but did not exceed expectations. This cautious forecast left investors pondering whether to be concerned or to see AMD as a hidden competitor that could eventually rival Nvidia.

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In response, AMD's stock dropped nearly 8% in after-hours trading, closing the extended session at $153.57. The market had been anticipating a stronger outlook for AI chips, and the lack of an upgrade dampened sentiment. Additionally, company executives acknowledged that the profit margins for AMD’s AI graphics chips are currently below the company's average, which added to investor concerns.

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Despite this, AMD’s CEO, Lisa Su, expressed optimism about the company’s position in the growing AI market. During a conference call with analysts, Su emphasized that the demand for AI infrastructure is robust, and AMD is well-positioned to capitalize on this trend. "We feel very good about the market from everything that we see," Su said. She highlighted that AMD’s product portfolio is strengthening annually, and there is significant investment being made to support AI workloads across various sectors.

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However, some analysts remained skeptical about how AMD’s performance stacks up against Nvidia. One pointed out that even with its latest chips, AMD still appears to be trailing Nvidia in terms of performance. Su responded by stating that she believes AMD has closed much of the gap between the two companies. She specifically mentioned AMD’s MI325 chip, saying, “It’s going to compete very well with [Nvidia’s] H200,” and noted that the MI350 series is expected to rival Nvidia's upcoming Blackwell GPUs.

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While AMD is positioning itself as a strong competitor, the true test of this rivalry will unfold in the coming year. Investors should also keep in mind that under Su's leadership, AMD has already successfully emerged as a serious competitor to Intel Corp. in the data-center market, an arena that Intel once dominated. It took time for AMD to gain the trust of corporate customers, with Su frequently assuring investors that companies were testing AMD’s chips before fully committing to using them.

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In describing the AI chip market, Su noted, "The ramp is going well, and we will continue to earn the trust and the partnership of these large customers.” She further emphasized that companies are open to working with AMD, and the company is being given a fair chance to prove itself. “We see that everywhere we go, everyone is giving us a very fair shot at earning their business, and that’s what we intend to do,” she added.

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One analyst took a moment to recognize Su's significant contributions to the company, reflecting on her 10-year tenure as CEO. He noted that AMD's stock was around $3 when she first took over, long before the company re-entered the server business and at a time when it was struggling with its own manufacturing assets. Since then, AMD has transformed into a major player in the data-center market, growing its data-center business by more than 100% this quarter.

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For those investors who may doubt whether AMD can truly compete against Nvidia in the AI market, the past decade serves as a reminder of the company's ability to rise against the odds. AMD’s success in the data-center market, once dominated by Intel, suggests that the company has the potential to challenge Nvidia in the AI space as well. Though it will take time, AMD seems poised to chip away at Nvidia’s dominance, positioning itself as a strong No. 2 in the rapidly evolving AI market.

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As the competition between AMD and Nvidia intensifies, many are closely watching how AMD’s AI chip strategy will unfold in the coming years. While Nvidia still holds a commanding lead, AMD’s steady progress under Su’s leadership cannot be underestimated. Investors may need to be patient, but if AMD can replicate the success it had in the data-center market, it could become a significant force in the AI chip industry, giving Nvidia a serious run for its money.

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