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Advanced Micro Devices (NASDAQ: AMD) stock lost ground in late 2018 after losing a critical crypto catalyst that was driving up the sales and prices of graphics cards. Sliding GPU (graphics processing unit) prices and excessive channel inventory mean that AMD is now in a spot of bother, as these two factors are going to affect its near-term growth.
In fact, AMD's sales are expected to drop on an annual basis over the next couple of quarters. Additionally, analysts predict that the chipmaker's revenue will grow just 6% in 2019, which is significantly lower than 2018's predicted revenue growth of 22%. But there's one catalyst that could help the company power ahead of expectations and deliver a solid performance next year and beyond.
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A gold mine
AMD has already made a mark in the data center space with its EPYC processors, and it has now trained its sights on the data center GPU market. The company recently revealed two data-center-specific GPUs built on the 7-nanometer (nm) manufacturing node: the AMD Radeon Instinct MI60 and MI50 accelerators. These GPU accelerators are the first of their kind, as rival NVIDIA (NASDAQ: NVDA) is yet to move to the 7nm manufacturing process.
This move makes it clear that AMD is now looking to take the game to NVIDIA in data center GPUs, where the latter has been ruling the roost. NVIDIA's data center business has been enjoying solid momentum over the past several quarters. Its growth has been driven by demand from major cloud service providers who are looking to tackle complex workloads related to artificial intelligence, machine learning, and high-performance computing.
More specifically, NVIDIA's data center revenue shot up 58% annually during the last reported quarter. The company has generated $2.85 billion in revenue from this business over the trailing 12 months, and it estimates that there's still a lot of room for growth. In fact, NVIDIA believes that the total addressable market for data center GPUs could hit $50 billion by 2023.
By comparison, the size of the overall data center accelerator market (which includes other chips apart from GPUs) was worth an estimated $2.84 billion in 2018, according to third-party estimates. This indicates that NVIDIA is indeed the dominant provider of GPUs for data centers, and it looks primed to make the most of this opportunity thanks to its early move into this space.
But AMD's entry into this market with cards based on an advanced manufacturing process could help it get ahead.
AMD's play
NVIDIA claims that its Tesla V100 is "the most advanced data center GPU ever built," and it is manufactured using a 12nm process. Clearly, AMD is trying to bring a more capable and power-efficient chip to the market with TSMC's advanced 7nm manufacturing node.