About the company

AMD (Advanced Micro Devices) develops and manufactures semiconductor products, primarily processors, graphics cards and chipsets for personal computers, game consoles and servers. Today, AMD is best known for its Ryzen processors, which were launched in 2017 and have become popular due to their excellent price/performance ratio. AMD processors are often preferred in gaming PCs, workplaces and servers. Despite the strong competition, it has managed to achieve significant success in this industry and gain a non-negligible market share. In recent years, AMD has seen its popularity grow thanks to advanced products that match or surpass competing modern technology solutions. [2]

Multi-billion acquisition

AMD's $4.9 billion acquisition of ZT Systems is a strategic move by AMD to strengthen its capabilities in artificial intelligence and cloud services. By integrating ZT Systems, which specialises in artificial intelligence infrastructure and training, AMD aims to gain a more competitive position against NVIDIA, the dominant player in the artificial intelligence chip market. ZT Systems will thus complement AMD's existing portfolio and strengthen its position in AI from next year. AMD expects the acquisition to be funded 75% in cash and 25% in shares. The move is also expected to put some pressure on AMD's profit margins given the typically lower margins in computer systems design, but the focus on AI systems could mitigate this risk. The acquisition is in line with AMD's goal to compete more effectively with NVIDIA.[1]

AMD also bought a major European AI firm

AMD's expanding presence in AI development is evidenced by another acquisition worth approximately $665 million, which it completed on August 12, 2024. In this case, it was Silo AI, Europe's largest privately held artificial intelligence research lab. This firm has been working with AMD for a long time, as its LLMs (Large Language Models) power AMD's processors. Silo AI's clients include leading companies such as Allianz, Philips, Unilever and Rolls-Royce.[2]

AMD stock performance

The recent announcement of the acquisition of ZT Systems had a positive impact on AMD stock, reflecting investor optimism regarding the strategic benefits of the acquisition. AMD's shares rose 4.5% in response to the news, but shares of its competitors also rose, which may signal a return of positive sentiment to the industry. AMD's stock performance may be more conservative than its competitors and its price has trended downwards in the last quarter, but the company has shown steady growth over the long term, despite crises in the form of supply chain disruptions caused by the Covid-19 pandemic or restrictions on AI chip exports from the US to China, which have also affected AMD.[3] *

Evolution of Advanced Micro Devices stock price over the last 5 years. (Source: Google Finance)*

Economic results

AMD reported revenue of $5.8 billion for the second quarter of 2024, an increase of 9% compared to the same period last year. Net profit was up a significant 881% to $265 million, up from $27 million last year. Diluted earnings per share were $0.16. * AMD posted record revenue in the data center segment, reaching $2.8 billion, up 115% year-over-year. This was due to increased sales of AMD Instinct GPUs and AMD EPYC CPUs. The client segment grew 49% year-on-year, while the gaming segment declined 59%. The embedded systems segment declined by 41%. Overall, AMD reported strong revenue and earnings growth, which was mainly driven by growing investments in AI technologies. The company expects revenue of around $6.7 billion in the third quarter of 2024, with a possible variance of $300 million, while cautioning that results may be impacted by various market conditions and other factors.[1] [3]

Conclusion

AMD continues its dynamic development and strategic expansion, reinforced by significant acquisitions. These moves indicate that it is preparing intensively to increase its competitiveness in the AI and cloud services space, thereby seeking to match dominant players such as NVIDIA. Going forward, AMD can be expected to continue to increase its innovation efforts and expand its product portfolio. Despite the current uncertainty, demand for AI technologies and cloud services is expected to continue to grow, which may present an opportunity for AMD to further grow and improve its market position. [4]

Adam Austera, Senior Analyst at Ozios

* Past performance is no guarantee of future results

[1], [2], [3], [4] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which may change. Such statements are not guarantees of future performance. They involve risks and other uncertainties that are difficult to predict. Results may differ materially from those expressed or implied by any forward-looking statements.

[1] https://ir.amd.com/news-events/press-releases/detail/1209/amd-reports-second-quarter-2024-financial-results

[1] https://www.investors.com/news/technology/amd-stock-rises-on-zt-systems-acquisition/

[2] https://www.investing.com/news/company-news/amd-acquires-ai-firm-silo-ai-in-mega-deal-93CH-3566955

[3] https://www.pc-tablet.com/amd-faces-us-export-restrictions-in-ai-chip-sales-to-china/#google_vignette