AMD is ramping up its AI chip production for China, despite tech sanctions by the US

Advanced Micro Devices or AMD has made a positive outlook for the remainder of this financial year, attributing it to the upcoming launch of their artificial intelligence (AI) chips, which could potentially rival Nvidia’s semiconductors. After this announcement, AMD’s shares saw a rise of approximately 3 per cent during after-hours trading.

CEO Lisa Su stated that AMD plans to increase production of their flagship MI300 AI chips in the fourth quarter. These accelerator chips, currently facing shortages, are designed to compete with Nvidia’s advanced H100 chips that are already available in the market. The demand for the MI300 series is reportedly very high, and AMD has expanded its partnerships with leading cloud providers, large enterprises, and various prominent AI companies throughout the third quarter.

Investors are optimistic about the MI300 chips, anticipating that they will pose a challenge to Nvidia in the rapidly growing market for advanced AI chips.

However, it is worth noting that the MI300s exceed the performance limits set for export to China under the October export controls sanctioned by the US. Unlike Nvidia and Intel, AMD has not yet developed specialized chips for the lucrative Chinese market. Nonetheless, AMD is considering a strategy to modify its MI300 and older MI250 chips to comply with US Commerce Department restrictions and cater to the Chinese market’s AI needs.

While AMD has not provided a detailed full-year forecast, they have expressed their expectation that 2023 sales in their data center business, including MI300 chips, will surpass the $6.04 billion generated in 2022.

Jenny Hardy, portfolio manager at GP Bullhound, which holds Nvidia and AMD stock, commented that Nvidia is still facing supply constraints, providing an opportunity for AMD’s chips to gain traction.

Hardy believes that if AMD can successfully increase production and launch the MI300 chips in the fourth quarter, they are likely to experience strong demand due to the scarcity of Nvidia chips. This situation may allow AMD to address some of the supply-demand gaps in the market.

According to AMD’s CEO, Lisa Su, the company has sufficient components to aggressively launch the MI300 chips in the fourth quarter, and they have ample supply planned for 2024 as well. Su also mentioned that the older MI250 chip continues to attract “strong interest” and is considered an excellent option for less complex AI tasks.

During the second quarter, AMD’s data center business revenue declined by 11 power cent to $1.32 billion, while its client business revenue dropped by 54 per cent to $998 million, compared to $2.2 billion from the previous year.

However, analysts predict that large cloud players like Microsoft and Google will increase their spending on data centers in the second half of the year, particularly focusing on AI chips and infrastructure. Additionally, while the decline in PC shipments has moderated, there are signs of improvement in demand.

Looking ahead to the third quarter, AMD’s finance chief, Jean Hu, expects both the Data Center and Client segments to experience double-digit percentage growth sequentially, driven by increased demand for their EPYC and Ryzen processors, although partially offset by declines in the Gaming and Embedded segments.

AMD has forecasted current-quarter revenue of approximately $5.7 billion, with a possible variance of $300 million. On average, analysts polled by Refinitiv expect revenue to reach $5.82 billion.