AI Inference Demand Drives CPU Market Transformation
Written by Emily J. Thompson, Senior Investment Analyst
Updated: 3 days ago
0mins
Source: Fool
- Inference Computing Growth: According to McKinsey, inference is expected to account for over 50% of AI computing capacity in data centers by 2030, indicating a rapid increase in demand for CPUs, particularly for handling AI inference workloads, which has significant business implications.
- AMD Market Share Increase: AMD doubled its total addressable market estimate for server CPUs to $120 billion last month, with a projected 70% revenue growth by 2026, demonstrating strong demand and market potential in AI inference applications.
- Intel Facing Challenges: Although Intel holds nearly 67% of the server CPU market share, it is gradually losing ground to AMD, particularly in product performance and pricing power, necessitating faster production to counter AMD's competition.
- Investor Outlook Optimistic: AMD anticipates a 78% earnings growth by 2027, significantly outpacing Intel's 42% forecast, and its influence in the data center GPU market suggests a higher investment value in AMD within the AI sector.
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Analyst Views on AMD
Wall Street analysts forecast AMD stock price to fall
33 Analyst Rating
25 Buy
8 Hold
0 Sell
Strong Buy
Current: 512.480
Low
210.00
Averages
289.13
High
377.00
Current: 512.480
Low
210.00
Averages
289.13
High
377.00
About AMD
Advanced Micro Devices, Inc. is a global semiconductor company. The Company is focused on high-performance computing and artificial intelligence (AI). Its segments include Data Center, Client and Gaming, and Embedded. Data Center segment includes AI accelerators, microprocessors (CPUs) for servers, graphics processing units (GPUs), accelerated processing units (APUs), data processing units (DPUs), Field Programmable Gate Arrays (FPGAs), and Adaptive system-on-Chip (SoC) products for data centers. Client and Gaming segment includes CPUs, APUs, chipsets for desktops and notebooks, discrete GPUs, and semi-custom SoC products and development services. Embedded segment includes embedded CPUs, APUs, FPGAs, system on modules (SOMs), and Adaptive SoC products. It markets and sells its products under the AMD trademark. Its products include AMD EPYC, AMD Ryzen, AMD Ryzen PRO, Virtex UltraScale+, among others.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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- Optimistic Future Outlook: Management guided for Q2 2026 revenue of approximately $11.2 billion, representing 46% year-over-year growth, with CEO Lisa Su noting that customer engagement around the new MI450 AI GPUs is strengthening, exceeding initial forecasts and indicating sustained market confidence in AMD's offerings.
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See More
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- Acquisition Fuels Growth: AMD's announcement to acquire MEXT, which has developed AI-driven memory optimization technology that allows NAND flash to function as dynamic random access memory (DRAM), is set to further propel AMD's growth in the market.
- Significant Cost Benefits: MEXT's technology can expand a system's DRAM capacity by 2 to 4 times while halving costs, which is crucial given that DRAM is approximately 50 times more expensive than flash memory, thus saving customers substantial amounts.
- Optimized Market Positioning: By integrating MEXT's technology, AMD will enhance the attractiveness of its data center product line, solidifying its position in the inference market, particularly in memory-constrained environments.
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See More
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See More
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- Disconnection Between Performance and Stock Price: While AMD's overall revenue rose 38% year-over-year and data center revenue increased by 57%, its operating margin fell by 1 percentage point, leading to an 11% drop in operating income, indicating a disconnect between stock price and business growth.
- Future Growth Expectations: Analysts forecast a 43% revenue increase for AMD this year and a 54% increase next year, but this combined 121% growth rate over two years is significantly lower than the stock's rise in 2026, suggesting that the stock may be overvalued.
- Valuation Risks Emerge: AMD's current price-to-earnings ratio is nearly 75 times, much higher than Nvidia's 24 times, despite Nvidia's stronger revenue growth, raising concerns about the stability of AMD's stock gains.
See More
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- Stock Performance: AMD's stock has surged 143% in 2026, ranking among the best performers in the market; however, compared to its peers, this growth appears insufficient, prompting investors to be wary of potential overvaluation risks.
- Financial Data: While AMD's overall revenue rose 38% year-over-year and data center revenue increased by 57%, its operating margin slipped by 1 percentage point, leading to an 11% decline in operating income, contrasting sharply with the rapid stock price increase.
- Future Projections: Analysts forecast a 43% revenue growth for AMD this year and 54% next year, but this combined 121% growth rate over two years is significantly lower than the stock's increase in 2026, indicating potential overvaluation.
- Industry Comparison: AMD trades at nearly 75 times forward earnings, while Nvidia, with an 85% revenue growth, trades at only 24 times forward earnings, suggesting AMD's stock is overpriced within the industry, leading investors to consider reallocating some gains to other more valuable AI investment options.
See More
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- Apple's Price Increase Signals: Apple CEO Tim Cook indicated that the company will raise prices due to rising memory and storage chip costs, suggesting that memory prices are unlikely to decrease soon, which exacerbates supply-demand imbalances and drives up related chip stocks.
- Amazon's Chip Business Potential: Amazon shares rose after reports of talks to sell custom chips to third-party data centers, with CEO Andy Jassy estimating that the chip business could generate an annual revenue run rate of $50 billion, a figure comparable to analyst estimates for AMD, highlighting Amazon's potential in the semiconductor market.
- Upcoming Earnings Reports: Next week, earnings will be released from FedEx and its recently spun-off FedEx Freight, along with significant reports from memory chipmaker Micron and other key companies, as the market closely monitors these data points to assess economic health.
See More
