In a significant surge, AMD shares rose by 9.9% on Thursday, reaching a closing price of $128.37. This increase marks the stock's best performance since May and the highest closing price achieved since June. The rally comes just a day after AMD launched its new line of artificial intelligence (AI) chips, which are set to compete directly against industry leader Nvidia.

During the launch event, AMD CEO Lisa Su unveiled the much-anticipated Instinct MI300X, a powerful graphics processor designed specifically for AI-oriented servers. Su revealed that both Microsoft and Meta have already committed to utilizing this advanced chip in their operations. These partnerships have sparked confidence among investors who believe AMD can make significant headway in the AI chip market, potentially challenging Nvidia's dominance.

Nvidia has reigned supreme in the AI chip market for the past year, commanding a substantial portion of the industry. However, with the growing need for cost-saving alternatives and increased flexibility, cloud providers and technology companies have been actively seeking alternatives. AMD's entrance into the market with its groundbreaking AI chips presents a compelling option.

The rise in AMD shares on Thursday signifies that investors are optimistic about the company's ability to capture a sizeable portion of the AI chip market, potentially denting Nvidia's stronghold. It is important to note that AMD currently projects $2 billion in AI GPU sales by 2024, a figure lower than market expectations for Nvidia's AI revenue. Wall Street analysts anticipate that Nvidia's data center sales for the current quarter alone will exceed $16 billion, although this metric encompasses other chip categories in addition to AI GPUs.

Despite these projections, analysts remain bullish on AMD's prospects. Deutsche Bank analyst Ross Seymore commented in a note on Thursday that AMD's customer partnerships and impressive product performance metrics position the company favorably to capitalize on the expanding AI market. Meanwhile, Citi analysts estimate that AMD could seize approximately 10% of the total AI chip market.

During the launch event, Lisa Su expressed her belief that the market for AI chips could reach a staggering $400 billion within the next four years – doubling the company's previous estimates. Su emphasized that AMD does not necessarily need to surpass Nvidia to thrive in the AI chip market, given its significant potential size. She added, "We believe it could be $400 billion-plus in 2027. And we could get a nice piece of that."

AMD's new high-end AI chip is set to begin shipping in significant quantities next year, further enhancing the company's competitive position in the market. As the quest for AI-powered solutions intensifies, AMD's latest offerings demonstrate its commitment to innovation and its determination to challenge Nvidia's dominance.

The surge in AMD shares highlights the market's anticipation and confidence in AMD's ability to effectively compete against Nvidia in the rapidly expanding AI chip market. With strong partnerships and impressive product performance, AMD has positioned itself to capture a meaningful share of the industry as it continues its upward trajectory.