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Can the Silo AI Acquisition Change AMD's Fate, or Is It a Risky Bet?
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Advanced Micro Devices (AMD - Free Report) is expanding its AI ecosystem with the announced acquisition of Silo AI for roughly $665 million in cash. The deal, expected to close in the second half of this year, will strengthen AMD’s AI skillset and software expertise.
AMD has been on an acquisition spree to strengthen its AI ecosystem. In the past 12 months, it has spent $125 million on a dozen of acquisitions. Nod.ai and Mipsology are some other notable acquisitions in the recent past.
Helsinki, Finland-based Silo AI offers end-to-end AI solutions and boasts a diverse clientele that includes the likes of Allianz, Philips, Rolls-Royce and Unilever. Silo AI has developed open-source large language models, like Poro and Viking, on AMD platforms in addition to its SiloGen model platform.
AMD’s acquisitiveness is aimed at primarily reducing the technological gap with NVIDIA (NVDA - Free Report) in the ongoing race for AI dominance. Silo AI’s team comprises scientists and engineers with extensive experience in developing customized AI models, as well as platforms and solutions for leading enterprises encompassing cloud, embedded and endpoint computing markets.
Nevertheless, Silo AI acquisition may not be enough to solve AMD’s growing problems which include stiff competition from NVIDIA in the race for AI chip dominance and continued weakness in the Embedded and Gaming businesses.
Strong Portfolio Fails to Boost AMD’s Prospects
Both AMD and NVDA have been the darlings of investors, driven by the massive proliferation of AI that has created a strong demand for GPU chips required to power AI models. The AI space is expected to remain robust with increased spending by cloud computing providers like Microsoft (MSFT - Free Report) and Alphabet (GOOGL - Free Report) .
Gartner estimates spending on AI software to witness a CAGR of 19.1% between 2022 and 2027 to hit $297 billion in 2027. Generative AI (GenAI) software spending is expected to surge from 8% in 2023 to 35% by 2027. Deloitte expects enterprise spending on GenAI to increase 30% in 2024 from $16 billion in 2023.
AMD’s initiatives to expand its portfolio are making it well-positioned to challenge NVDA not only in the data center market but also in the growing AI-enabled consumer PC market.
New offerings like the Instinct MI325X accelerator are helping to expand AMD’s footprint in the data center market. AMD has launched the Ryzen AI 300 Series, the third generation of AMD AI-enabled mobile processors, and Ryzen 9000 Series processors for laptop and desktop PCs.
However, the challenging macroeconomic environment and rising uncertainty over the upcoming Presidential elections don’t bode well for AMD, given its much smaller size and GPU market share compared to NVIDIA.
NVIDIA’s strategy to release new AI chip models annually instead of its previous two-year update timeline intensifies competition for AMD. Moreover, initiatives by tech giants like Microsoft, Alphabet and Meta Platforms to build their own platforms for AI don’t bode well for AMD.
Sluggish Embedded & Gaming Hurts AMD Prospects
For second-quarter 2024, the Embedded and the Gaming segment revenues are expected to decline by a significant double-digit percentage year over year. Sequentially, Embedded segment revenues are expected to be flat, while the Gaming segment revenues are expected to decline by a significant double-digit percentage.
The Zacks Consensus Estimate for second-quarter Embedded revenues is currently pegged at $847.4 million, indicating a 45.7% year-over-year decline. The consensus mark for Gaming is pegged at $661.94 million, suggesting a massive 165.4% decline.
Embedded & Gaming
Image Source: Zacks Investment Research
AMD expects second-quarter 2024 revenues to be $5.7 billion (+/-$300 million). At the mid-point of the revenue range, this represents year-over-year growth of approximately 6% and sequential growth of approximately 4%.
The Zacks Consensus Estimate for second-quarter 2024 revenues is pegged at $5.71 billion, indicating 6.54% growth year over year. The consensus mark for earnings is pegged at 66 cents per share, unchanged over the past 30 days and suggesting 13.79% year-over-year growth.
Estimate Revision Steady
Image Source: Zacks Investment Research
Conclusion
AMD shares have jumped more than 14% in the past month, outperforming the Zacks Electronics-Semiconductors industry’s gain of 12.4% and the broader Zacks Computer & Technology sector's return of 4.7%. NVIDIA has gained 7.7% over the same timeframe.
One Month Performance
Image Source: Zacks Investment Research
However, we believe the recent share price momentum will be short-lived, given the rising fundamental challenges. AMD has a Growth Style Score of D, which makes the stock unattractive for growth-oriented investors. A Value Style Score of F indicates a stretched valuation at this moment.
AMD currently has a Zacks Rank #5 (Strong Sell), which indicates that investors should stay away in the near term.
Image: Bigstock
Can the Silo AI Acquisition Change AMD's Fate, or Is It a Risky Bet?
Advanced Micro Devices (AMD - Free Report) is expanding its AI ecosystem with the announced acquisition of Silo AI for roughly $665 million in cash. The deal, expected to close in the second half of this year, will strengthen AMD’s AI skillset and software expertise.
AMD has been on an acquisition spree to strengthen its AI ecosystem. In the past 12 months, it has spent $125 million on a dozen of acquisitions. Nod.ai and Mipsology are some other notable acquisitions in the recent past.
Helsinki, Finland-based Silo AI offers end-to-end AI solutions and boasts a diverse clientele that includes the likes of Allianz, Philips, Rolls-Royce and Unilever. Silo AI has developed open-source large language models, like Poro and Viking, on AMD platforms in addition to its SiloGen model platform.
AMD’s acquisitiveness is aimed at primarily reducing the technological gap with NVIDIA (NVDA - Free Report) in the ongoing race for AI dominance. Silo AI’s team comprises scientists and engineers with extensive experience in developing customized AI models, as well as platforms and solutions for leading enterprises encompassing cloud, embedded and endpoint computing markets.
Nevertheless, Silo AI acquisition may not be enough to solve AMD’s growing problems which include stiff competition from NVIDIA in the race for AI chip dominance and continued weakness in the Embedded and Gaming businesses.
Strong Portfolio Fails to Boost AMD’s Prospects
Both AMD and NVDA have been the darlings of investors, driven by the massive proliferation of AI that has created a strong demand for GPU chips required to power AI models. The AI space is expected to remain robust with increased spending by cloud computing providers like Microsoft (MSFT - Free Report) and Alphabet (GOOGL - Free Report) .
Gartner estimates spending on AI software to witness a CAGR of 19.1% between 2022 and 2027 to hit $297 billion in 2027. Generative AI (GenAI) software spending is expected to surge from 8% in 2023 to 35% by 2027. Deloitte expects enterprise spending on GenAI to increase 30% in 2024 from $16 billion in 2023.
AMD’s initiatives to expand its portfolio are making it well-positioned to challenge NVDA not only in the data center market but also in the growing AI-enabled consumer PC market.
New offerings like the Instinct MI325X accelerator are helping to expand AMD’s footprint in the data center market. AMD has launched the Ryzen AI 300 Series, the third generation of AMD AI-enabled mobile processors, and Ryzen 9000 Series processors for laptop and desktop PCs.
However, the challenging macroeconomic environment and rising uncertainty over the upcoming Presidential elections don’t bode well for AMD, given its much smaller size and GPU market share compared to NVIDIA.
NVIDIA’s strategy to release new AI chip models annually instead of its previous two-year update timeline intensifies competition for AMD. Moreover, initiatives by tech giants like Microsoft, Alphabet and Meta Platforms to build their own platforms for AI don’t bode well for AMD.
Sluggish Embedded & Gaming Hurts AMD Prospects
For second-quarter 2024, the Embedded and the Gaming segment revenues are expected to decline by a significant double-digit percentage year over year. Sequentially, Embedded segment revenues are expected to be flat, while the Gaming segment revenues are expected to decline by a significant double-digit percentage.
The Zacks Consensus Estimate for second-quarter Embedded revenues is currently pegged at $847.4 million, indicating a 45.7% year-over-year decline. The consensus mark for Gaming is pegged at $661.94 million, suggesting a massive 165.4% decline.
Embedded & Gaming
AMD expects second-quarter 2024 revenues to be $5.7 billion (+/-$300 million). At the mid-point of the revenue range, this represents year-over-year growth of approximately 6% and sequential growth of approximately 4%.
The Zacks Consensus Estimate for second-quarter 2024 revenues is pegged at $5.71 billion, indicating 6.54% growth year over year. The consensus mark for earnings is pegged at 66 cents per share, unchanged over the past 30 days and suggesting 13.79% year-over-year growth.
Estimate Revision Steady
Conclusion
AMD shares have jumped more than 14% in the past month, outperforming the Zacks Electronics-Semiconductors industry’s gain of 12.4% and the broader Zacks Computer & Technology sector's return of 4.7%. NVIDIA has gained 7.7% over the same timeframe.
One Month Performance
However, we believe the recent share price momentum will be short-lived, given the rising fundamental challenges. AMD has a Growth Style Score of D, which makes the stock unattractive for growth-oriented investors. A Value Style Score of F indicates a stretched valuation at this moment.
AMD currently has a Zacks Rank #5 (Strong Sell), which indicates that investors should stay away in the near term.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.