AMD Will Need Another Decade To Try To Pass Nvidia

Lisu Su has turned in her first ten years at the helm of AMD, and what a hell of a run it has been.

The company was a mess when she came on board two years prior to being named chief executive officer, and she took her knowledge of the game console business garnered while at IBM Microelectronics and took that business away from Big Blue by competing hard. Within a year of being named CEO, AMD had a battle plan to re-enter the datacenter CPU business and soon thereafter started laying the foundations of a datacenter GPU business that could compete with archrival Nvidia.

To be sure, AMD got lucky in that Intel’s foundry business – and thus its dependent CPU business for clients and servers – foundered, but AMD’s roadmap execution for Epyc CPUs and Instinct GPUs has been flawless. The few changes that there has been in roadmaps have been made to better intersect with technologies that made the CPUs and GPUs better, and these days, AMD is fielding consistently better CPU hardware than Intel and has GPU hardware that is at parity on raw features with Nvidia.

There is much work to be done to create full systems, not just compute engines, but every dollar that AMD makes and every share of that dollar it gets to keep after paying the bills has been earned with sweat and smarts. And, AMD has added Xilinx to the fold and put out respectable and competitive client CPUs and GPUs, too, which help create another virtuous cycle that can help AMD ride out bumpy spots in the datacenter, should they come to pass again. (And they will, fear not.)

In the quarter ended in September, AMD’s revenues rose by 17.6 percent to $6.82 billion, and net income rose by a factor of 2.6X to $771 million, which is 11.3 percent of revenues. This may not be AMD’s most profitable quarter – it had a killer Q4 2020 and a very good run for profits between Q3 2021 and Q1 2022 – but this is the largest revenue that the company has ever brought in during a 13 week period. And even after acquisitions and investing heavily in research and development for future CPU, GPU, DPU, and FPGA products, the company still had $4.54 billion in cash and investments in the bank.

This is the healthiest we have seen AMD since it re-entered the datacenter in 2015 and absolutely bests its first pass through the glass house in the early 2000s with the Opterons, a time when GPUs were only used to draw pretty pictures and when AMD spent $5.4 billion to buy graphics card maker and Nvidia rival ATI Technologies. That acquisition already paid for itself through sales of client GPUs, but datacenter GPU sales from the five quarters of Q4 2023 through Q4 2024, inclusive, will also more than pay for the ATI acquisition again.

That is because, as we have been expecting all year, Su & Company have raised their guidance for GPU sales for all of 2024 to more than $5 billion, an increase of $500 million from the forecast a quarter ago and a factor of 2.5X higher than AMD was telling Wall Street to expect way back in October 2023 ahead of the “Antares” MI300 series datacenter GPU launch that hit in December.

Here is a table of the various models we built since AMD started forecasting GPU revenues for 2024 late last year:

Our models show that AMD’s Instinct GPU ramp started off a bit more slowly than we expected – compare out best case scenario from January 2024 to the quarterly GPU sales at the bottom of the table above. But starting in the third quarter and with what we expect in the fourth quarter, the ramp for Instinct GPUs is accelerating. We also think that the blended $30,000 price tag for MI300X series GPUs and MI300A hybrid CPU-GPU was perhaps a bit high, and that means AMD is shipping more GPUs than we originally thought.

We think the average price of an MI300 series GPU is $22,500 and that means, given more than $5 billion in sales for 2024, AMD is shipping 224,222 units. Depending on how you measure the FP64 performance for El Capitan – either on vector or tensor cores – and depending on the peak performance you expect it to have (we are guessing 2.25 exaflops), the soon-to-be world’s fastest supercomputer, installed at Lawrence Livermore National Laboratory, will have either around 36,700 or 18,350 MI300A units. Assume they count the tensor core math throughout, which is 2X the vector core math, to give peak theoretical performance for El Capitan. That would leave somewhere around 206,000 other MI300X units on the market, and that leaves around 25,750 eight-way universal baseboard GPU nodes sold during the year.

This is but a fraction of what Nvidia will do in terms of revenues and volumes. But, AMD is going to turn in the best year in its history, too. It will take a long time – and perhaps a major and highly unlikely screwup by Nvidia to let AMD catch it. Nvidia is not Intel, which let AMD catch it once with the Itanium debacle and then again with the foundry debacle. Nvidia co-founder and chief executive officer Jensen Huang, who is a distant cousin to Lisa Su, is a driven visionary and does not need to be paranoid to survive. Nvidia helped create the next wave of computing and is benefitting from first mover advantages, including massive revenue and profit streams.

The Datacenter group at AMD is nearly twice as large as the Client group that sells CPUs and GPUs for PCs, and it is 3.8X times as profitable. The Datacenter group has operating profit margins that are three times the average for the company. But due to the expense of research, development, and manufacturing, the Instinct datacenter GPU line has operating income that is lower than the company at large and is a drag on profits garnered from datacenter CPUs, FPGAs, and DPUs.

This will change over time, and at some point, as AMD and its manufacturing partners get better at this and ramp volumes higher, the Instinct line will have higher than average profit margins than other datacenter products from AMD and than AMD overall.

It will take time for the Datacenter group to be larger than the rest of the company, but that could happen in 2025 or 2026. A lot depends on how many Instinct GPU accelerators AMD can make.

What seems obvious is that the AMD Instinct datacenter GPU business, which is the fastest-ramping product in the company’s long history, will soon reach parity with its Epyc datacenter CPU business if current trends persist and if our model accurately reflects AMD’s reality.

On the call with Wall Street analysts going over the numbers, Su confirmed that Instinct GPU sales were above the $1.5 billion mark in Q3 2024, but she didn’t say how much. Our best guess is that in Q3 2023, AMD had about $50 million in Instinct GPU sales, so $1.57 billion in sales we think AMD posted in Q3 2024 is a factor of 30.4X higher. That is, as you see above, a pretty fast ramp and as steep as anything Nvidia has done. It’s just a lot smaller chunks of revenues than Big Green has been taking down.

In the quarter, we think AMD did about $1.84 billion in Epyc CPU sales, up 24 percent year on year and up 9.9 percent sequentially. With the “Turin” CPUs launched, we will be very keen on what Intel has to say in a few days about sales of “Sierra Forest” and “Granite Rapids” Xeon 6 processors that have to compete against them. We could see 2025 be the year when AMD and Intel have equal revenue share of server X86 processors.

The question now is will Su stick around for another ten years to try to reach revenue parity with Nvidia. It may take that long, and at 55, there is still time to do it. And, importantly, Su is six years younger than her cousin also in the GPU business.

May the next decade also not be boring. Beating Nvidia is going to be a lot harder than beating Intel was.