It’s funny how life works out sometimes. Advanced Micro Devices, Inc. (NASDAQ:AMD) has spent the past couple of decades trying to chip away at market share enjoyed by Intel Corporation (NASDAQ:INTC) and Nvidia Corporation (NASDAQ:NVDA) in the CPU and GPU markets, respectively.
Yet, one of the bullish forces driving AMD stock higher of late has been the adoption of its technology for use in artificial intelligence and cryptocurrency-mining. Neither are what the company intended its hardware to be used for, but its graphics-processing chips are perfectly suited for the task.
But (and as is all-too familiar to long-term owners of AMD) the company is already ceding ground on both fronts, even before it reached its full stride.
Too Many Headwinds
To its credit, it’s only been within the past few days that AMD reportedly grew its CPU market share from 20% to 30%, scaling back Intel’s dominance of the most common type of computer processor from 80% to around 70%.
Then again, that was only a look at the second quarter, and Advanced Micro Devices had just launched its ballyhooed Ryzen CPU in March. A wide swath of consumers were specifically waiting to buy that particularly processor. It remains to be seen if AMD can sustain that demand. Realistically speaking, it probably can’t.
In the meantime, Advanced Micro Devices is also already giving up ground on a couple of serendipitous uses of its hardware. One of those is on the artificial intelligence front.
It wasn’t the intended use of the chipset, but as it turns out, the same AMD hardware that can handle even the most demanding graphics processing tasks (like video gaming) also nicely powers the deep-learning needed by machine-learning/AI platforms. As yours truly explained — albeit simplistically — of Nvidia’s GPUs back in March, graphics processing chips can handle a massive number of computations all at once, even if it can’t handle any highly-complicated computations that most CPUs can.
In other words, in the world of artificial intelligence, it’s about quantity over quality. The same idea applies to AMD’s wares as they do to Nvidia’s, which is why Advanced Micro Devices took dead aim at the budding AI market late last year.
Problem is, Nvidia is already miles ahead of Advanced Micro Devices in the machine learning arena. Partnerships with Baidu Inc (ADR) (NASDAQ:BIDU), Hewlett Packard Enterprise Co (NYSE:HPE) and a whole slew of automakers are quickly making Nvidia the standard in the AI business. Advanced Micro Devices has some artificially intelligence deals in place, but nothing like Nvidia.
It’s not just on the machine learning front that owners of AMD stock have good reason to be frustrated though. The narrower sliver of the artificial intelligence market that mines for cryptocurrency (you know it better as Bitcoin) has also become something of a sore spot.
RBC analyst Mitch Steves delivered the bad news last week, pointing out that Nvidia will “launch mining chips specifically designed for cryptocurrencies.” Since AMD doesn’t have hardware specifically designed to mine for digital currency yet (though is working on it), “Nvidia will win in the long term.”
In the meantime, while AMD’s Ryzen CPUs had a great second quarter, Intel was already planning a counter-punch. The next generation of its Core X lineup are expected to hit store shelves soon, and promise to impress at a palatable price.
Indeed, while Intel was somewhat caught by AMD due to a little laziness, Intel remains the provider of choice for most OEM computers, if only because most computer makers know what they’re getting when the utilize Intel’s chip sets.
Looking Ahead for AMD Stock
Don’t misread the message. The Advanced Micro Devices of today is a heck of a lot better than the AMD of just a year ago. Its new Epyc server chip is widely expected to win the company some datacenter market share.
Canaccord Genuity analyst Matthew Ramsay commented that Epyc was a winner due to its “record benchmark scores, the roadmap’s simplified lineup and uncompromised memory and I/O bandwidth configurations, and the foundation to extend seamlessly as AMD moves the roadmap to 7nm CPUs over the next couple years with guaranteed multi-generational socket compatibility.”
As was the case with its GPU and consumer CPU hardware though, there’s an adoption hurdle to get over, and it shouldn’t take long for Intel to respond. In fact, its answer — a next-generation data chip of its own — is slated to debut later this summer. Given the choice between a familiar name and a less-proven data center player, odds are good data center managers are going to lean towards Intel.
In other words, blindly bet on AMD stock at your own risk. The turnaround thus far has been impressive, but it could be a long while before Advanced Micro Devices has the actual numbers to justify the stock’s price.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
