At I/O Fund, we provided deep dive research and two 1-hour webinars that predicted AMD would take away a huge chunk of Intel’s market share to have double-digit market share in the data center. At the time, AMD had only 4% market share. The prediction was bold as Intel is the 800 lb. gorilla — yet the prediction fully materialized and AMD today has “low 20 percent” market share in the data center.
AMD’s comeback is nearly unheard of, with only Apple posting a comeback of this proportion in the history of the tech industry.
If you’re interested in hearing more beyond this write-up, I recommend our exclusive webinar provided to I/O Fund Members where we discussed in great detail AMD’s “EPYC” improbable comeback: AMD Webinar
The abbreviated version is that AMD plans to take even more market share from Intel — and then will take this new lead over Intel to help fill the role of duopoly in AI accelerator chips.
Note: by the time you’re reading this, AMD comeback over Intel is more evident than when we first discussed it as we began discussing this and built a leading position with real-time alerts when AMD had 4% share in the CPU-data center and the company has grown this market share over 5X since our original prediction. In fact, the strategic comeback was so little recognized by industry analysts that we nicknamed AMD “the Dark Horse” which means an unexpected competitor who secures victory.
How Did “The Dark Horse” Get Here?
AMD’s Zen architecture was introduced in 2017. The company proved it wasn’t down for the count by offering a chipset-free design, resulting in energy-efficient processors capable of executing more tasks per cycle and more cores than Intel.
AMD’s first-gen Zen architecture helped prove AMD had a pulse and a heartbeat— however faint it may have been with a tiny 2% CPU market share— but it was circa 2020 when the company found its wings again. In that phase, it grew by 400%, catapulting to 8% of the CPU market. Today, its share stands at an estimated 20%-24% and while the company is unlikely to increase six times over again, with continued excellent management, market dominance of 50% market share or greater is very much in the real realm of possibilities. This is the move we want to capture in 2023/2024.
Second Gen
Note: we go into more specs and a great detail on AMD’s products on I/O Fund Advanced. Below is a summary.I/O Fund Advanced. Below is a summary.
When the company released the second generation of its Zen architecture, AMD showed it was outpacing Intel in terms of computing power, memory and energy use. More importantly, it was doing all this at a lower cost, thanks to multi-chip modules that combine a 7nm with a 14nm to use the most advanced technology when and where it’s needed most by leveraging the more mature process node.
At the time, Intel was still producing a 14nm chip, although it promised that a 10nm was on the way. Essentially, AMD leapfrogged their competitor with a more power-efficient product, and one that allows for more cores per chip.
Interestingly enough, Intel was expected to catch-up with a comparable 10nm release planned for Q2 or Q3 2020 called the Ice Lake Xeon Scalable. Then, at the height of the pandemic, just four months before Intel’s expected release, the I/O Fund covered AMD, calling it “the one that got away” in 2019. “It’s estimated that for every $1.00 in Rome chip sales, Intel loses $2.25 on average in Intel Xeon SP sales,” we noted. "The savings are then deployed to buy more Rome chips, which can further depress Intel’s revenue.”
The Milan EPYC Series announced in August of 2020 was officially launched in March of 2021. The Milan is built on 7nm technology and has up to 64 cores and 128 threads with increased clocks compared to the Rome series. At the time of launch, Milan had a 100% advantage over Intel’s Sky Lake on server processor scores, according to Geekbench.
This was the momentthe moment Intel was expected to go gangbusters but instead Intel drove into a brick wall. Ice Lake’s release was delayed for two years, finally launching with 40 cores, up from 28 cores, versus a whopping 68 cores for AMD.
When it was finally released, an unbiased analyst had this to say:
“We won’t rehash the delay, denial, and begrudging admittance cycle that is Ice-SP’s gestation, just be aware that it was a 2019 CPU and is now a mid-2021 CPU. We know it launches today and Intel is officially claiming, ‘We have shipped over 200,000 Ice Lake CPUs for revenue’ and the shipping parts are the D-2 stepping […] let’s do the math and assume those 200K Ice-SPs shipped in three months or about 66K CPUs/month. If the server market is about 30M CPUs/year, let's call it 32M for the sake of round numbers, that would be 8M/quarter for normal production. = or about 2.28 days worth of production. This is not a figure I would be mentioning in public if I was aiming to boost confidence.”just be aware that it was a 2019 CPU and is now a mid-2021 CPU. We know it launches today and Intel is officially claiming, ‘We have shipped over 200,000 Ice Lake CPUs for revenue’ and the shipping parts are the D-2 stepping […] let’s do the math and assume those 200K Ice-SPs shipped in three months or about 66K CPUs/month. If the server market is about 30M CPUs/year, let's call it 32M for the sake of round numbers, that would be 8M/quarter for normal production. = or about 2.28 days worth of production. This is not a figure I would be mentioning in public if I was aiming to boost confidence.”
In my world, that’s the equivalent of a good Comedy Central Hollywood roast!
Why 2023 will be AMD’s Year
When we first covered AMD, it had a 4% share of the data center; now, it sits at roughly mid-20% of the CPU data center over Intel, a spectacular comeback.
However, the move we want to capture is when AMD goes from owning “mid-20%” of the CPU data center to owning 40% to 50% of the market— and this is entirely possible due to Intel’s most recent stumble.
AMD has the 5-nanometer line scheduled for release in Q4, which includes Zen-4 architecture, and Zen-5 architecture planned for 2024 (reference our AMD Q3 2022 earnings update provided for you in the Blog updates).
The company also stated that the Zen-3 Milan Series is still outstripping supply with visibility six quarters out, implying for full year 2023. Zen-2 was CEO Dr. Lisa Su’s comeback, while Zen-3 is responsible for the current move in data center market share.
Source: Tom’s Hardware’s Hardware
Pictured Above: AMD has grown from 2% market share to “mid 20-percent market share”
AMD’s Dominance Over Intel Has Never Been More Obvious
AMD reported an 83% year-over-year increase in data center revenue for Q2 2022. Meanwhile, Intel dropped 16%. AMD appears to have gained 6% market share, which, one analyst noted, is “the highest share gain in the data center business that [AMD] has reported even going back to 2005.”
We began covering AMD when it had 4% total market share versus 96% Intel and the recent gains places AMD now in the “mid 20%” total market share for the data center against Intel. When asked if this was the correct math, Su stated to the analyst: “I think your math is in the ZIP code from our point of view.”
We have been quite thrilled to see the team at AMD led by Lisa Su and Forrest Norrod overtake Intel at times. However, what happened last quarter with Intel’s stumble is an exponentially greater mistake than the last stumble that we prepared for in March of 2020, which later materialized that July.
Meta: You say Capex, I think AMD
You may have seen tech commentators poking fun at Meta’s recent keynote. Zuckerberg demonstrated adding legs to Metaverse avatars, “progress” that doesn’t quite match up with the company’s mammoth investment. Most investors look at Facebook’s cash and think “this will make a great stock,”— yes, the FCF margin has been impressive. Many of Meta’s newfound critics are wondering: “Will the Metaverse succeed?”
What we want as investors is second-level thinking. Where is Big Tech capex going? Regardless of whether or not Meta succeeds, AMD stands to greatly benefit.
Other Factors
Meanwhile, we have to consider that outside of cybersecurity, there are going to be very few growth markets in tech in 2023, and of the growth markets we are tracking, very few will hit double digits.
Note: for more information on cybersecurity stocks and growth trends, please upgrade to I/O Fund’s full service where we also provide real-time trade alerts.upgrade to I/O Fund’s full service where we also provide real-time trade alerts.
Big Tech capex is important as it’s the one catalyst that can raise revenue estimates for next year for AMD, which subsequently raises bottom line estimates. We covered this in a free analysis going into earnings here:
“The news has been in an uproar about crypto mining and the consumer-related PC markets. However, it has been our stance for some time that Big Tech capex is the true leading indicator for AI semiconductor companies. Despite an enormous increase in Big Tech capex primarily driven by data centers, this line item does not get the attention it deserves in terms of follow-through to the semiconductor industry. Below, we look at FY2022 budgets to draw the conclusion that H2 spending on data center chips is equal if not greater than the first half of 2022 […] The Data Center Systems segment, however, is expected to grow fastest among all the segments. It is expected to grow 11% YoY to $212 billion, higher than the 6.4% growth in 2021.”
Where AMD Is Headed
Artificial Intelligence and Machine Learning Will Exceed the Mobile Economy
Smartphones had a 10-year cycle of maturation beginning with the iPhone in 2008 and the app economy proved to have a similar maturation for digital advertising. Following a decade-long run.
· The smartphone market was valued at $720 billion in 2019 and the global mobile application size was $155 billion.
· The mobile advertising market was valued at $60 billion — Facebook
· The total global ad spend worldwide is valued at $560 billion — Google
The mobile market is worth roughly $2 trillion yet the combined market cap of these companies is $4 trillion. Meanwhile, PricewaterhouseCoopers is predicting the AI market will reach $15.7 trillion, which some experts believe will put its impact on par with the advent of electricity.
Semiconductors will not comprise the entire $15.7 trillion but according to McKinsey, they will “capture 40 to 50 percent of the total value from the technology stack.
“These diverse solutions, as well as other emerging AI applications, share one common feature: a reliance on hardware as a core enabler of innovation, especially for logic and memory functions.”
The artificial intelligence economy will be four times larger than the mobile economy. Picture this: if mobile gave us companies with $2 trillion market caps, it makes sense that AI will give us businesses with $8-$10 trillion market caps.
Breakdown
There’s also a lot to look forward to. Should you choose to upgrade to become a I/O Fund Premium member, you’ll receive AMD’s next five-year thesis, which will include Xilinx, long before anyone else know what they’re up to. This acquisition is more offensive for growth rather than defensive (along the lines of how YouTube impacted Google or Instagram impacted Facebook).
Our premium site owns two lesser-known semiconductor names. The first is centered in an important shift for electric vehicles and is up 58% in our portfolio this year. The second is an up-and-coming AI stock that doubles as a 5G infrastructure stock. There is something very big on the horizon for the AI/5G semi company in H2 2023 and we believe now is the time to look more closely as this company. We reserve these stock picks for our Premium I/O Fund Members, which you can learn more about here.