AMD Q2 Earnings: AI Updates To Watch
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Summary:
- Advanced Micro Devices, Inc. reports earnings on Tuesday, July 30.
- In this article, I discuss the major AI-related items that investors should watch closely.
- I maintain a hold rating for AMD stock.
Jonathan Kitchen
Over the last quarter, Advanced Micro Devices, Inc.’s (NASDAQ:AMD) (NEOE:AMD:CA) share price has seen a rather high degree of volatility, although there has been little overall change in share price since the company’s last earnings report. As I discussed after last quarter’s earnings, AMD is tricky to value presently because there is considerable uncertainty surrounding AMD’s ability to compete successfully against NVIDIA (NVDA) in the market for data center GPUs. However, AMD’s upcoming Q2 earnings on July 30 could bring clarity for investors (one way or other). In this article, I discuss the most significant AI-related items that investors should watch closely to gauge which way the wind is blowing for AMD stock.
1. The MI300 Backlog
After the last earnings report, I had downgraded AMD stock to a hold rating because the company’s backlog for MI300 orders had only grown by about $500 million over the quarter. To recap, AMD has been providing backlog figures for the MI300 since late last year. The figure was at $2 billion in October, $3.5 billion in January, and $4 billion in May. It was the slowdown at the end that prompted my rating downgrade, due to worries that AMD could potentially be struggling to compete with Nvidia — particularly as the latter announced its upcoming Blackwell GPUs in March. Readers can see my detailed analysis of Nvidia’s strong technological progress here.
It is critical to note that the figures provided by AMD are not projected MI300 sales for 2024. They are the backlog of MI300 orders. Management had been clear about this during the January earnings call, stating:
the way to think about the $3.5 billion is these are customers that we’re working with who have given us firm commitments on what they need.
As I argued previously, an increase in the backlog of only $500 million in a quarter seems too small for AMD to sustain revenue growth in data center GPUs, especially next year. The slow increase in the backlog is particularly worrisome given the enormous current boom in demand for data center GPUs, which should, in theory, make it a bit easier for AMD to win customers.
However, I had also noted that it is possible that the slow backlog growth could potentially be due to some innocuous reason (rather than difficulties competing with Nvidia). It is possible that new orders could simply be affected by considerations about the timing of AI infrastructure build out by customers or lumpiness in orders.
This quarter’s upcoming earnings report should provide much-needed clarity regarding the AMD’s growth prospects in data center GPUs. If backlog growth remains tepid, then that would suggest a stronger likelihood that AMD may be struggling to compete against Nvidia. On the other hand, if the backlog growth picks up again, then that would be a more positive sign for AMD’s ability to sustain and grow data center GPU sales in 2025. Investors should be watching this item very closely.
2. The MI325 Production Timeline
AMD is slated to launch an update to the MI300 in Q4 — i.e., the MI325, which upgrades GPU memory from 192 gigabytes of HBM3 to 288 gigabytes of HBM3e. Although we know when the MI325 is supposed to launch, there is still uncertainty regarding how quickly production of these chips will ramp and in what volumes they will be available to customers over the coming quarters.
The MI325 production timeline is important because the sooner these updated chips are available (in significant quantity), the sooner they can improve AMD’s competitive position against Nvidia’s current-generation Hopper GPUs (including the updated H200s) and upcoming Blackwell GPUs. However, it is possible that even though the MI325 launches in Q4, significant volumes may not be available until much later.
At least this is what we saw with the MI300. The MI300 launched in Q4 2023, but ramping production has taken quite a lot of time and AMD has only had a few hundred million dollars’ worth of MI300 chips available each quarter so far. If the MI325 production ramp progresses similarly, it could remain difficult for AMD to keep pace with Nvidia (especially as the latter moves from a two-year to a one-year launch cycle for GPUs).
On the flip side, though, it is possible that the MI325 could ramp a little faster compared to the MI300. The MI300 was a complete overhaul of AMD’s GPU architecture with the introduction of chiplets. However, the MI325 is only a refresh that increases memory capacity. As such, in theory, production could ramp fairly quickly because not much is being changed. We will therefore have to wait and see how aggressively AMD brings the MI325 to market.
I expect that there will be some discussion of the subject on the upcoming earnings call, although it’s unclear how much AMD will publicly reveal about its production plans. AMD’s data center GPUs take seven months to manufacture, so MI325 production should already have begun and production plans for multiple upcoming quarters should already be laid out. Investors should watch management’s commentary closely to gauge how things are shaping up.
3. Data Center GPU Customer Engagements
Finally, AMD’s customer engagements are an important leading indicator for data center GPU demand that investors should watch closely. During the Q1 2024 earnings call, management reported that they had “more than 100 enterprise and AI customers actively developing or deploying MI300x,” which was up from “dozens” in Q4 2023. It is useful to monitor if there is any further growth in this figure when AMD reports earnings.
Of course, engagements do not necessarily lead to orders (or orders of significant magnitude). Hence, any additional information from AMD about their success in converting engagements into orders would also be very welcome, although I am not sure how much detail management may provide on this front.
If the number of customer engagements is trending up, then that would certainly be a positive sign for AMD’s ability to compete with Nvidia over the coming quarters. Success in converting engagements into orders would likewise be a positive sign. We will have to wait and see exactly how much new information we receive about these two metrics in the upcoming earnings call. However, I do expect that there will be some relevant commentary that should give investors more clarity about AMD’s data center GPU prospects.
Conclusion
AMD remains one of the more difficult-to-predict AI plays on the market today. Nvidia is being very aggressive with introducing new products on both the hardware and software fronts, which makes it difficult to forecast how well second-place AMD can do in the coming quarters and years. It is possible that AMD could carve out a decent niche for itself in the data center GPU business. But on the other hand, it is possible that Nvidia could make it very difficult for AMD to hang on to more than a foothold. The upcoming earnings should provide some clarity for investors, or at least some early signs one way or the other.
Meanwhile, I maintain a neutral Hold rating for AMD. But I will keep revisiting it as more information becomes available.
Analyst’s Disclosure: I/we have a beneficial long position in the shares of NVDA either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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