Advanced Micro Devices (AMD) revealed on Wednesday that it will be cutting approximately 4% of its global workforce, which amounts to around 1,040 employees. This move is part of the company’s broader strategy to focus its resources on the rapidly expanding artificial intelligence (AI) chip market, where it seeks to challenge the dominance of Nvidia. AMD’s workforce reduction is aimed at aligning its operations with the company’s largest growth opportunities in AI, reflecting the shift in its business priorities to meet growing demand for AI technologies.
“We are taking targeted steps to align our resources with the opportunities in AI, and unfortunately, this will result in reducing our global workforce by approximately 4%,” said an AMD spokesperson. The company also committed to providing support to those affected, promising assistance as they transition out of the company.
Growing AI Demand and Competitive Landscape
At a recent industry event, AMD CEO Lisa Su highlighted the overwhelming growth in AI demand, which has surpassed industry expectations. According to Su, this surge in demand has spurred increased investment across the technology sector, which AMD is keen to capitalize on. “AI demand has exceeded expectations and continues to accelerate,” Su said, underlining the company’s focus on AI as a key growth area.
AMD’s ambition is to gain a stronger position in the AI chip market, which is currently dominated by Nvidia. The market leader holds over 80% of the market share, thanks in part to its leading-edge AI chip products and software, which powers AI applications like OpenAI’s ChatGPT. Although AMD is aiming to position itself as a strong competitor, it faces significant challenges in closing the gap with Nvidia.
Financial Results and Growth Areas
AMD’s third-quarter results for 2024 presented a mixed performance. While its overall revenue rose by 18% year-over-year to $6.82 billion, the company’s results fell short of analysts’ projections. Net income showed a significant improvement, increasing from $299 million in Q3 2023 to $771 million in the same period this year.
One of the standout segments in AMD’s results was its data center business, which saw a remarkable 122% increase in revenue, reaching $3.5 billion. This growth was driven by the increasing demand for AI accelerators, including the MI325X chip, for which AMD expects strong customer interest. Production shipments of the MI325X are set to begin later this quarter, positioning the company to further capitalize on the AI market.
AMD’s Position in the AI Space
AMD is the world’s second-largest GPU maker, but it still trails Nvidia by a considerable margin. While AMD’s stock has declined 5% in 2024, Nvidia’s shares have soared by more than 200%, cementing Nvidia’s position as the most valuable tech company globally. AMD is focusing on AI accelerators like the MI300X, which are already being used by major clients like Meta and Microsoft. However, Nvidia continues to lead the industry, largely because of its dominance in both hardware and the core software tools that power AI applications.
Despite these challenges, AMD is optimistic about its future in AI. The company forecasts $5 billion in AI chip sales for 2024, representing about 20% of its projected $25.7 billion in total revenue. In comparison, Nvidia is expected to generate $125.9 billion in revenue during the same period, highlighting the significant gap between the two companies.
Struggles in Other Business Areas
While AMD is betting on AI for its future growth, other areas of its business are struggling. The company’s gaming segment, once a key driver of its GPU sales, is expected to see a 59% decline in revenue this year, with projections down to $2.57 billion. This reflects the broader shift away from gaming GPUs toward AI-focused technologies, which are increasingly seen as the future of the industry.
Additionally, AMD faces ongoing competition from Intel in the CPU market. However, AMD has made significant progress in gaining market share in the server CPU space, where its share rose by nearly 3% in Q3 2024, reaching 34%.
Despite solid performance in its data center segment, AMD’s stock has faced challenges in 2024, reflecting high investor expectations that the company has yet to fully meet. While AMD’s stock surged in 2023 on AI optimism, its inability to deliver on these expectations has left investors cautious.
