For AMD, the market's primary focus is on the data center business. Driven by the demand for AI and computing power, the MI series chips are the main drivers of the company's performance and valuation this year.
During the conference call, management mentioned that "the full-year revenue expectation for AI chips has been raised from $4.5 billion to $5 billion." While the upward revision seems positive, it actually "hides a potential risk."
1. MI Series Chip Situation
$AMD(AMD.US) This year, the MI300 chip has started to ramp up production, contributing revenue for three consecutive quarters and serving as the main competitor to NVIDIA's H100. However, due to inherent differences in the chips, AMD has become a secondary supplier in the AI chip market. As for the MI325 chip (competing with H200), the company expects to start mass production in early 2025, while the MI350 chip (competing with Blackwell) is expected to begin mass production by the end of 2025. Based on these comparisons, if all goes smoothly, the technology gap between AMD and NVIDIA is about a year.
So, is the full-year AI chip guidance raised from $4.5 billion to $5 billion this quarter good or bad?
Considering the previous communications from the company, AMD's MI300 first broke the $1 billion mark in the second quarter, and the sales of data center GPUs (mainly MI300) exceeded $1.5 billion in the third quarter. Therefore, it can be inferred that the sales revenue of MI300 in the fourth quarter may be less than $2 billion (with MI325 primarily shipping from early 2025).
Here, I roughly assume that AMD's GPU revenue in the first quarter is $500 million. Based on the company's description, making a rough assumption: the first three quarters are $500 million, $1.1 billion, and $1.6 billion respectively. For the full-year guidance of $5 billion, this corresponds to about $1.8 billion in the fourth quarter, with the incremental revenue possibly being less than $500 million.
In this case, if the monthly GPU increment is $500 million, then over a year, it would amount to $2 billion in incremental revenue, corresponding to a maximum annualized revenue base of $8 billion in the fourth quarter, with a year-on-year growth rate of only 25%, which puts significant pressure on the current market's 30-35 PE by the end of 2025.
Furthermore, during the previous supply-demand imbalance, even AMD's relatively lagging product MI300 had decent demand growth. Now, with the slowdown in the growth of secondary supply products, it can also be seen that the tight supply-demand relationship in the AI industry chain may have begun to loosen.
2. Significant Decline in H100 Rental Prices
NVIDIA had previously anticipated that the price of each GPU would remain at $4 per hour for four years, but the price has now significantly declined. The rental price for the H100 initially was $4.7, and during the supply-demand imbalance, the price even surged to $8, but recently the price has dropped to $2-3.
As the rental prices for chips like the H100 decline, it actually reflects new changes in demand. The market for small and medium model creators has shrunk, and fine-tuning existing models will be more economical. Therefore, the demand for large-scale training in the market has decreased, along with corresponding investments. With the changes in demand, current chip rental prices have also seen a significant decline.
III. Overall View on AMD
AMD's current business is mainly influenced by data centers and client segments. Dolphin believes that both businesses will still see some growth. 1) Client Business: Continues to benefit from an increase in processor market share in the PC market; 2) Data Center Business (AI Chips): Due to the company's ramp-up of the MI300 this year, the company will launch new products next year, and it is expected to achieve an incremental revenue of 3-5 billion for the whole year; 3) Gross Margin: Changes in supply and demand will put certain pressure on the improvement of gross margins. Considering the company's current market value, Dolphin estimates that the current stock price corresponds to a 35 times PE ratio of operating profit for 2025 (adding back the amortization of intangible assets from the acquisition of Xilinx). Under the current situation of declining growth rates for the company's AI chips, the downward pressure on the stock price at a 35 times valuation clearly exceeds the upward opportunity.
Risk Disclosure and Statement of this Article: Dolphin Investment Research Disclaimer and General Disclosure
