Just_Super
I last wrote about NVIDIA Corporation (NASDAQ:NVDA) in May in an article titled “How Nvidia is Leaving Competitors in the Dust.” At the time, I had argued that Nvidia’s relentless technological progress on both the hardware and software fronts was placing it in a strong competitive position. This makes it difficult for rival chipmakers, particularly Advanced Micro Devices, Inc. (AMD) and Intel Corporation (INTC), to catch up. Based on the latest updates about data center GPUs from AMD’s Q2 earnings report, my conviction in this thesis has been further strengthened. In this article, I discuss what AMD’s latest updates imply for Nvidia’s competitive position and future outlook. Overall, I maintain a strong buy rating for NVDA stock.
Readers can see my detailed discussion of AMD’s Q2 earnings report here.
In 2024, Nvidia Is Still The King Of Data Center AI
AMD has been providing backlog figures for its MI300 chips since late last year. The backlog stood at $2 billion in October, $3.5 billion in January, and $4 billion in May. Per AMD’s Q2 earnings call, the MI300 backlog has now crossed $4.5 billion.
As readers can see, AMD’s rapid backlog growth from late 2023 and early 2024 has slowed down quite considerably. Over the last two quarters, the company has only received $500 million/quarter in new orders for the MI300. Meanwhile, Nvidia’s data center GPU business is still growing by billions of dollars each quarter, and during Nvidia’s Q1 earnings call management reported that “demand for [current-generation] Hopper [GPUs] during the quarter continue[d] to increase.” As such, it seems fair to say that AMD is not making a significant breach into Nvidia’s competitive moat at the moment.
As I have discussed before, the slowdown in AMD’s backlog growth has coincided with Nvidia’s unveiling of its next-generation Blackwell GPUs, alongside a number of new and updated software offerings including NIMs (neural inference microservices) and applications for forecasting, simulation, and robotics. I had suspected after AMD’s Q1 earnings report that the slowdown in backlog growth during that quarter was owed to these new announcements from Nvidia, but I wasn’t quite sure at that time. Two consecutive quarters of slow backlog growth for AMD is starting to look like a pattern. I now feel fairly confident that Nvidia’s technological progress is probably responsible for the slowdown in new orders for AMD GPUs for this year.
Consequently, I think that Nvidia should get the lion’s share of new orders at least for 2024, since demand for artificial intelligence remains strong and if orders aren’t going to AMD, then they should be going to Nvidia. Consequently, to me, Nvidia’s dominant position in the data center GPU segment seems quite unassailable this year.
AMD Expects The Market For AI Hardware To Remain Strong
On the latest earnings call, AMD CEO Lisa Su continued to sound upbeat about artificial intelligence and the resulting demand for hardware. She stated that:
The rapid advances in generative AI and the development of more capable models are driving demand for more compute across all markets.
In addition, when discussing the data center GPU business in particular and its outlook for 2025, she stated that:
Overall, we remain quite bullish on the overall AI market. I think the market continues to need more compute.
Finally, when asked about the strength of artificial intelligence capex going forward, Lisa Su seemed quite confident that the high levels of spending on AI infrastructure are likely to continue. Here is what she said:
I think the overall view on AI investment is we have to invest. I mean, the industry has to invest. The potential of AI is so large to impact the way enterprises operate and all that stuff. So I think the investment cycle will continue to be strong.
Of course, AMD has been very bullish about multi-year growth in the data center GPU market for some time now. Still, given some recent worries about the return on investment for AI infrastructure, it should be heartening for Nvidia investors that AMD does not seem to be expecting significant in terms of AI infrastructure capex.
Nvidia’s Competitive Position For 2025 Looks Excellent
Based on commentary from AMD’s management, it also seems that Nvidia’s strong competitive position should be sustainable through at least 2025. There were two parts of AMD’s earnings call that seemed to suggest this outcome.
First, it appears that AMD will only barely begin to ramp production of its refreshed MI325 chips this year. Here is what Lisa Su had to say:
I think, looking at [MI]325X, we are on track to launch later this year. From a revenue standpoint, there will be a small contribution in the fourth quarter, but it really is still mostly the MI300… And [MI]325 will start in the fourth quarter and then ramp more in the first half of next year.
Given that the MI325 likely won’t be available in very significant volumes until Q2 or Q3 of 2025, it sounds like all that Nvidia has to contend against from AMD through H1 2025 is the MI300. Nvidia is already doing perfectly well against the MI300 with its current-generation Hopper GPUs, and next-generation Blackwell GPUs are on the horizon this year, so it would seem that there is no real threat to Nvidia from AMD through H1 2025.
Moreover, from Lisa Su’s remarks about 2025, it sounded like she doesn’t expect AMD to have a competitive alternative to Blackwell GPUs until the MI350, which will presumably launch toward the end of 2025. Here is the comment from Lisa Su (emphasis added) that leads me to this view:
As we go into next year, I mean one of the important things that we announced at Computex, was increasing and expanding our road map. I think we feel really good about our road map. We are on track to launch MI325 later this year. And then next year, our MI350 Series, which will be very competitive with Blackwell solutions.
If my interpretation of her comment is correct and MI350 (and not MI325) will be able to compete with Blackwell, then Nvidia could go all of 2025 without a real competitive alternative from AMD to its flagship GPUs. If so, then Nvidia’s competitive position looks strong indeed for all of 2025, and I would expect it to maintain its dominant market share in the data center GPU segment.
Conclusion
After AMD reported earnings, AMD stock jumped 4%, but Nvidia stock jumped 12%. I think the market’s reaction ultimately makes sense. Although AMD has made progress in data center GPUs and has quickly gone from negligible revenues in this segment to several billion dollars, it does not seem likely that AMD will be able to take significant market share from Nvidia through 2025.
AMD is the closest competitor to Nvidia and the biggest threat to Nvidia’s dominance in the GPU data center space. If AMD is unlikely to take significant market share through 2025, then it should be smooth sailing for Nvidia for quite some time. Nvidia has a clear shot at continuing to grow its GPU revenue as demand for artificial intelligence continues to grow as currently expected — particularly as technological progress continues in the AI space and enables better and better models to be trained and deployed.
As such, I still say what I’ve been saying for more than a year now, which is that investors should be patient and allow Nvidia to continue to grow its top and bottom lines. It’s certainly good to keep a close watch on one’s investments, of course. However, currently, Nvidia seems very well-positioned to deliver strong growth through at least 2025. Hence, overall, Nvidia remains a strong buy for me.
