📢 AMD’s spike reveals CPUs’ importance

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.

And it’s not just AMD:

• In its fiscal Q4 2026 earnings report last night, Arm Holdings reported a deluge of demand for its data center CPUs, which were launched in late March.

• “We now have more than $2 billion of customer demand across fiscal 2027 and fiscal 2028, more than double what we stated at launch,” per the press release. “Soon the data center will be Arm’s largest business.” 

• The company says it already has 50% market share for CPU compute among top hyperscalers.

The Takeaway

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.”

“The world has changed, amid sentiment that the CPU growth trajectory has changed,” wrote Morgan Stanley analyst Joseph Moore.

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