AMD’s spike reveals just how central CPUs are to the AI boom
“The world has changed, amid sentiment that the CPU growth trajectory has changed,” wrote Morgan Stanley analyst Joseph Moore.
The CPUs have joined high-bandwidth chips as the apple of AI investors’ eyes, with shares of Advanced Micro Devices sharply higher after its robust Q1 results and a strong sales outlook.
The central processing unit, long overshadowed by the higher-powered graphics processing units that helped kick-start the AI boom, is now enjoying its time in the sun.
While AI agents are being asked to do more and make more decisions, not all of their processes require a Mensa-level mind (that is, a GPU). In many cases, merely a functioning noggin (or CPU) will do.
On the conference call, AMD CEO and Chair Lisa Su said that the appropriate ratio of CPUs to GPUs in order to run AI models used to be “a 1-to-4 or 1-to-8 configuration,” but that’s “now changing and getting closer to a 1-to-1 configuration, or you can even imagine if you get lots and lots of agents that you could have more CPUs than GPUs.”
Both management and analysts were talking a lot more CPUs compared to GPUs, which is a bit of a revealed preference on the expected growth opportunity for the firm and, based on the performance of peers, the industry at large.
“The world has changed, amid sentiment that the CPU growth trajectory has changed,” wrote Morgan Stanley analyst Joseph Moore.
Intel and Arm Holdings — two other stocks highly geared toward AI CPUs — have all doubled year to date, with AMD knocking on that door as well.
Bernstein analyst Stacy Rasgon noted that AMD has doubled its expectation for the CPU server total addressable market by 2030 to $120 billion from $60 billion a few months ago, “and given what we are seeing around agentic AI workloads this is looking potentially plausible.”
He upgraded the stock to “outperform” from “market perform” in the wake of these results, and roughly doubled his price target to $525 from $265.
JPMorgan analyst Harlan Sur agreed that AMD’s forecasts and market share target are “together pointing to a materially higher multi-year CPU revenue and earnings trajectory than previously framed.”
