Chipmaker Advanced Micro Devices (AMD) has projected robust sales for its artificial intelligence (AI) processors, even as it forecasts first-quarter revenue below Wall Street estimates. With companies increasingly investing in generative AI applications, enterprise budgets are being directed towards AI server processors. This trend has led both large and small businesses to seek alternatives to the dominant AI chips produced by Nvidia, which currently holds approximately 80% of the market share. AMD, however, stands out as one of the few viable alternatives in the market.

In the fourth quarter of 2023, AMD reported impressive growth in its data center segment revenue, which includes its AI server chips, with a 38% increase from the previous year to reach $2.3 billion. The chipmaker has also built a solid supply of AI chips for 2024, valued at over $2 billion. Additionally, AMD had initially projected fourth-quarter AI chip sales of $400 million.

While AMD's overall fourth-quarter revenue stood at $6.17 billion, slightly surpassing analysts' estimates of $6.12 billion, the company registered an adjusted gross margin of 51%, slightly lower than the estimated 51.4%. Looking towards the first quarter of 2024, AMD expects a revenue of $5.4 billion, with a potential fluctuation of plus or minus $300 million. However, this falls short of analysts' average estimate of $5.73 billion, according to LSEG data. On an adjusted basis, AMD forecasts a gross margin of around 52%.

The market for programmable chips, which can be customized for various functions, has faced challenges in recent quarters due to a chip supply glut and weakened end-market demand in industries such as automotive and industrial. As a result, AMD witnessed a decline of approximately 24% in its fourth-quarter embedded segment revenue, which amounted to $1.1 billion. Rival chipmaker Intel also acknowledged corrections in programmable chip inventories across multiple industries during their post-earnings call, anticipating that these adjustments will persist throughout the first half of this year.

Despite AMD's lower-than-expected first-quarter revenue projection, the company's strong performance in the AI processor market suggests promising growth opportunities. As demand for advanced AI chips continues to rise, AMD's position as a viable alternative to Nvidia's dominance may lead to increased market share and bolster its overall financial performance in the months ahead.