Loading summary
Transcript1 lines
- [00:00]
A
Welcome back to the Rundown for another weekend deep dive. Today we are talking about a big rivalry brewing in the tech world between AMD and Nvidia. Nvidia has been the king of GPUs that have powered the AI boom over the last three years. But AMD is now coming for the crown. So in today's episode, we'll tell you about the new products and partnerships from AMD that have caught the attention of tech insiders and investors and that that's going to be enough to take down Nvidia. We got a great show for you today. Let's dive in. To understand AMD's role in the AI boom, let's first start with what the company actually does. AMD's business is divided into three main segments. They have their client in gaming, their data centers, and the embedded division. The smallest segment of the three is called Embedded. Those are the chips designed for smart sensors, robotics and car Systems. According to AMD's latest earnings report, which is Q2 of 2025, at the time of this recording, this segment made $824 million in revenue, which is around 11% of AMD's total revenue. Next up, you have the client and gaming division. This is AMD's consumer business. This segment includes all the chips that power laptops, desktops and gaming consoles. You know, if you, if you recently bought a Windows computer, there is a decent chance that it's being powered by an AMD Ryzen processor. AMD also makes the custom chip inside the PS5 and the Xbox. Now this segment is pretty cyclical based on the gaming and PC market. But according to the latest earnings report, it was AMD's largest source of revenue, generating $3.6 billion, which is about 47% of their total overall revenue. But then that brings us to the data center segment. This is AMD's AI business and it did about $3.2 billion in revenue. And investors expect this to grow significantly over the next couple of years. This segment includes AMD's high performance CPUs and more importantly, high performance GPUs that power the massive AI data centers being built to process all the AI demand. The star of this segment is AMD's instinct line and their next generation AI chip, which includes the Mi 350 and the Mi 450. These chips from AMD are designed to be competitors against Nvidia's Blackwell chips and they're already starting to gain traction. According to AMD CEO Lisa sue, seven of the top 10 AI model builders, including Microsoft, Meta, Oracle and Tesla are already using AMD chips. And thanks to some major deals announced recently, AMD has now become the new obsession for Wall Street. If AMD does end up being a legit threat to Nvidia's dominance, I think we're going to look back to October 6, 2025 as a major turning point. OpenAI, the company behind ChatGPT, announced a landmark deal to buy 6 gigawatts worth of AMD's inst AI GPUs to power their infrastructure. This is one of the biggest GPU orders in history. Under this deal, OpenAI would become a lead customer for AMD's upcoming Mi450 chips and their Helios systems, translating into tens of billions of dollars in potential revenue for AMD over the next few years. AMD says that they expect double digit billions of annual incremental data center AI revenues, with revenues start hitting their books in the second half of 2026. Now, what made this deal really interesting was that in exchange for this commitment from OpenAI to buy all of these AMD chips, AMD granted OpenAI the option to get up to 160 million shares of AMD, which is about 10% of the company. The deal is structured so OpenAI is financially incentivized to help AMD win. Amd shares to OpenAI will vest in tranches tied to OpenAI actually buying and deploying AMD's chips and and it's also tied to AMD stock price hitting a certain target. The final tranche of shares only vest if all 6 gigawatts of AMD chips are deployed and AMD stock hits $600 a share. So now OpenAI is financially incentivized for AMD stock price to keep going up if they actually want to get the stake in the company. So it's a pretty clever deal and I think it's a win win for both sides. But AMD didn't stop there. They just announced a deal with Oracle. Oracle plans to buy and deploy 53,000 of AMD's Mi 450 chips starting in late 2026. I think the bigger message is that the big players building out the AI infrastructure like Oracle and OpenAI are now looking to diversify away from Nvidia and AMD has stepped up with their offering. But it's going to take more than good hardware to fully dethrone Nvidia. AMD has made some pretty big moves over the last few weeks. But it brings us to the big question here. Can AMD really compete With a monster like Nvidia. Right now, Nvidia controls about 90% of the market for GPUs used in AI workloads. And in order for AMD to take a significant bite of that, they're not only going to have to compete with really good hardware, which is like the physical chips, but also software on the hardware side. AMD has always been pretty good. Their CPUs have been crushing Intel's for years at this point. And while their AI chips were lagging Nvidia, they the new Mi350 and Mi450 chips seem to be a game changer. The Mi450 chip is the first AI chip from AMD that can be assembled into a rack size system where 72 chips function as one. And that's pretty important because all the advanced AI models need dozens of AI chips all running in parallel, which AMD can now do. But hardware is only half the battle when it comes to the AI industry. Nvidia's real monopoly comes from their software, which is called cuda. Now I'll be honest, I'm not a super technical guy here, but the best way that I can describe CUDA is that it's like the iOS of AI. It's the software platform that all AI engineers and data scientists use to build and run their models on Nvidia's chips. Nvidia has spent over a decade building this ecosystem. Engineers are trained on it, university students are taught it, and all the most important AI tools are are built with cuda. Now AMD also has a competing software called rockm, but from everything that I've read, nobody really likes it. The AMD software is full of bugs and it's hard to do large scale AI training on it. It's getting better, but it's Nowhere close to CUDA. And that's a big disadvantage for AMD, because even if AMD's chips are slightly better and cheaper than Nvidia's, I don't know how many AI developers will want to use AMD software over Nvidia's cuda. Now the bullish case for AMD is this partnership with OpenAI. Now that OpenAI is financial incentivized for AMD to succeed, all the best AI engineers working at OpenAI will be using ROCM. Or maybe OpenAI can help AMD develop their software stack that could eventually compete with cuda. The other thing that AMD has going for them is their CEO Lisa Su. She has a history of taking down monopolies. You know, AMD was actually Facing near bankruptcy in the early 2010s because they weren't able to compete with Intel's dominance in the PC space. Lisa Su took over as CEO in 2014 and under her leadership, AMD re engineered their CPU lineup with the Ryzen processor. That ended up taking a significant market share from Intel's long standing monopoly in the PC space. So now she's trying it again, but this time she's facing Nvidia, who is led by her cousin Jensen Huang. Still blows my mind that those two are cousins. So it's not going to be easy for amd, especially when you consider the other challenges that AMD is facing beyond the software and hardware. So what are some other risks that AMD faces? Well, for One, it's this OpenAI deal. You know, it assumes that OpenAI can actually afford to pay for all 6 gigawatts of chips, which would cost OpenAI over $100 billion over the next five years. Now, if you look at OpenAI's financials, the Financial Times recently reported that OpenAI is doing around $13 billion a year in revenue. But. But yet the company is still losing a ton of money. Expected to be around $20 billion this year. So how much longer can OpenAI continue to run such big losses before their investors stop giving them money? Or I guess the bigger concern might be what happens if the AI bubble bursts and demand for AI doesn't grow. AMD might not ever get the revenue that they were expecting from this OpenAI deal. And that brings me to AMD's valuation. AMD stock has almost doubled in 2025. Their market cap is now over $350 billion at the time of this recording. Now if you look at the forward PE ratio, which is a company's current stock price in relation to the projected earnings for the next 12 months, AMD is trading at 43 times forward PE. Well, Nvidia is around 33 times. So that means that AMD is more expensive when looking at future earnings than even Nvidia, which is the undeniable market leader in the space. And that brings me to my final point. Nvidia is still Nvidia. They are so dominant in this space. I mean, just look at their data center revenues. All right, in Q2, Nvidia's datacenter revenues came in at $41 billion, while AMD's was just 3.2 billion. I mean, these two aren't even close when it comes to revenue. Adding the fact that Nvidia's margins are better, their margins around 70% while AMD's is below 50%. And depending on who you ask, Nvidia still has better hardware and and they definitely have better software. So while AMD has made a lot of progress in the AI space, they are currently nowhere close to being a threat to Nvidia's dominance. So what's my take here? Well, Nvidia has been the only game in town when it comes to supplying the best AI chips for AI workloads. And that has made Nvidia the most valuable company in the world with a market cap of over $4 trillion. But AMD is finally starting to make some noise. Their hardware is catching up to Nvidia and and their massive deals with OpenAI and Oracle could be a turning point for the company. But are they a legit threat to Nvidia's dominance? No. And they don't really have to be. If all the predictions about AI are true and it ends up being this game changing technology, then the pie will be so big that even if amd only takes 15 to 20% of the market, that should still make them one of the most valuable companies in the world. You know, as an investor, monopolies are great, but Duopolis aren't so bad either, and that seems to be AMD's best case scenario. Well, all right guys, that's it for today's weekend deep dive. Hope you guys enjoyed that one. If you did, don't forget to subscribe to the podcast, especially on Spotify and YouTube. And let me know in the comments on Spotify and YouTube on what you think about AMD. Do you think that their valuation is justified? Do you think they'll end up taking more than 20% of market share from Nvidia? Or do you think the hype has gone too much? By the way, if you are a first time listener, just an FYI, we post episodes every single day throughout the week, recapping the stock market crypto and corporate drama. So if you guys want to stay up to date on everything that's happening in the markets, make sure you guys are subscribed to the podcast. With earnings season kicking into gear, it's a great time to do so. Thank you guys so much for listening, watching and commenting. Shout out to Mike and Connor for all the work behind the scenes and we'll see you guys back here tomorrow.