AMD's AI eggs are in too few baskets, Wall Street worries

AMD has reported strong second quarter results and projected even better future financials once its Helios rack systems and Instinct MI400-series GPUs enter the market. CEO Lisa Su stated that the growing number and scale of Helios and MI450-series deployments will position AMD's data center business for significant growth in the second half of the year, with acceleration expected in 2027.

However, despite the impressive profits surge and numerous commitments from AI-focused companies like OpenAI, Anthropic, and Meta, Wall Street remains skeptical. Microsoft, another key customer for AMD's latest AI chips, shares some of these clients with Meta, while Meta itself is reportedly planning to enter the GPU cloud business.

The primary concern for investors is AMD's heavy reliance on AI adoption by a few major players, who are not yet demonstrating consistent profitability. Despite Su's reassurances about the potential of these large frontier-model companies, Wall Street remains cautious about AMD's prospects. AMD's Helios platform, with 72 Instinct MI455X GPUs each equipped with 432 GB of HBM4 memory, is positioned to compete with Nvidia's Vera Rubin platform.

Additionally, AMD is targeting a growing market for CPUs to power agentic AI sandboxes, anticipating this area to be the primary growth driver for Epyc sales. However, AMD is now contending with Intel, Nvidia, Arm, Qualcomm, AWS, Google, Microsoft, and other rivals in the increasingly competitive CPU market. While AMD's embedded division is showing promising growth, the gaming and client computing divisions are struggling due to the RAM shortage and a reduced console sales cycle.

Furthermore, gaming revenue declined by 31 percent during the quarter, dropping to $779 million. AMD's datacenter and AI sales teams will need to deliver a forecasted revenue of $13 billion plus or minus $300 million for the next quarter.