The volatile landscape of the stock market has witnessed a notable reaction following the influence of DeepSeek, particularly within the realm of AI chip stocks, prompting a reevaluation of not only stock valuations but also the strategic outlook of industry titans like AMD (Advanced Micro Devices). How these giants position themselves amidst emerging technological trends and competitive challenges forms the crux of the discussion.

On February 4, AMD unveiled its financial performance for the fourth quarter, reporting a staggering $7.7 billion in revenue and a gross margin of 51%, culminating in a net profit of $482 millionThe projection for the entire year of 2024 indicates a record-setting revenue of $25.8 billion, albeit with a slightly reduced gross margin of 49%. Notably, revenue from the data center segment has emerged as a pillar of support, representing a substantial 50% of the overall performance.

Although AMD’s stock surged 4.58% in after-hours trading, this positivity quickly transformed into a downturn, with the market opening on February 5 reflecting a decline that briefly exceeded 10%. This volatile response underscores the market’s skepticism regarding the sustainability of AMD's recent successes, particularly in light of the company's forecasts for potential revenue contractions attributable to seasonal shifts.

According to reports compiled by 21st Century Business Herald, the observed decline in AMD's stock price is indicative of broader market apprehensions

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Despite record-breaking performance from the data center segment for both the fourth quarter and the entire year, the growth rate has notably diminishedThe company anticipates a 7% quarter-over-quarter decline in data center revenue for the first quarter of 2025, aligning with a sentiment in Wall Street that has been recalibrated in response to DeepSeek's market influence.

In the subsequent earnings call, AMD's Chair and CEO Lisa Su addressed questions regarding the competitive landscape posed by DeepSeek and ASIC (Application-Specific Integrated Circuit) chips, which are seen as formidable contenders against GPU (Graphics Processing Unit) chipsSu detailed insights pertaining to the future trajectory of the AI chip market, revealing that revenue from AMD's data center GPU business surpassed $5 billion in 2024. However, this figure remains significantly lower than the $30.77 billion reported by NVIDIA for a single quarter.

The growth rate of AMD's data center business starkly contrasts with its previous performance cycles

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In the fourth quarter, the segment generated a net revenue of $3.859 billion, reflecting a year-over-year increase of 69% and a quarter-over-quarter increase of 9%. This stands in stark contrast to the previous quarter, which saw net revenue of $3.549 billion—an impressive year-over-year growth of 122% and a quarter-over-quarter increase of 25%. This trend signals a contraction in growth rates, positioning the fourth quarter as a pivotal moment of adjustment.

Looking ahead, the first quarter of 2025 is expected to present additional challenges as AMD's data center revenue is forecasted to experience a 7% decreaseDespite this, AMD maintains that the overall strength of its data center business is becoming increasingly apparentSu has characterized 2024 as a transformative year for AMD, projecting total revenues of $25.8 billion alongside a gross margin of 49%. The widespread adoption of AMD's EPYC CPU processors and the robust performance of its Instinct GPU products, which collectively generated over $5 billion, have contributed to nearly doubling the annual revenue of AMD's data center division, which ultimately reached $12.6 billion—a remarkable year-over-year increase of 94%.

Beyond data centers, AMD's other core business segments are performing more robustly as well

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The company's client segment demonstrated strength in the fourth quarter, reporting net revenues of $2.313 billion, up 58% year-over-year and 23% quarter-over-quarter, largely propelled by demand for its Ryzen processors.

For 2024, bolstered by heightened demand from desktop and mobile devices for Ryzen chips, the client segment revenue is expected to reach $7.1 billion, signifying a year-over-year growth of 52%.

During the crucial holiday shopping season, Su noted that the Ryzen series captured record market shares across multiple platformsAdditionally, AMD has announced a groundbreaking partnership with Dell to provide Ryzen Pro processors to the tech giant.

Su also highlighted AMD's unique position in the AI PC market, noting that the company is the only supplier capable of offering a complete CPU solution, thus supporting a variety of computer products including Windows Copilot applications

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The total addressable market (TAM) for PCs is projected to grow at about 5% annually by 2025.

However, the gaming segment faces ongoing challengesThe fourth quarter recorded net revenues of $563 million, down 59% year-over-year, albeit reflecting a quarter-over-quarter increase of 22%. This decline stems from efforts by Microsoft and Sony to reduce channel inventory, impacting revenues from semi-custom productsNotably, the gaming segment has broken its trend of sequential declines in the first three quarters of 2024.

AMD’s analysis suggests that as channel inventories normalize, a gradual recovery for this segment may emerge in 2025.

The embedded market is experiencing its own unique set of challenges, as it too was impacted by mixed demand from end markets, resulting in a slower recovery than anticipatedThe fourth quarter recorded net revenues of $923 million, representing a 13% year-over-year decline, with revenues remaining flat quarter-over-quarter.

For the entire year of 2024, revenue from the embedded sector is expected to reach $3.6 billion, reflecting a 33% decline year-over-year primarily due to clients working to normalize inventory levels

The strong demand from aerospace, defense, simulation, and testing markets has been offset by sluggish conditions in the industrial and communications sectors.

As for the anticipated decline of 7% in revenue for the first quarter of 2025, Su detailed that the data center segment is expected to mirror this average drop, while the decline for client and embedded businesses is expected to exceed this measure, largely attributed to seasonal factorsThe gaming segment is projected to decline less than the 7% average as inventory normalizations are expected to mitigate further downturns.

Overall, Su expressed satisfaction with AMD’s overall performance in 2024, indicating that the company has a clear roadmap for its hardware and software products for 2025. The second half of 2025 is projected to outperform the first half, particularly with the anticipated success of the MI350 series, which is set to catalyze the GPU business further

AMD is actively exploring redesigns for its recently launched MI300 and MI325 series.

Despite executive optimism regarding AMD's data center business, the slowdown in growth during the fourth quarter, coupled with stock performance, suggests that the market remains cautiousThe emergence of variables within the AI chip market has also introduced new dynamics.

In addition to GPUs, the buoyancy in AI computing demand has also elevated the visibility of ASIC chips, particularly following Broadcom's recent stock upturnWhile significant gaps remain in terms of scale between ASIC and GPU chips, ASICs demonstrate pronounced competencies in AI inference, aligning closely with current industry trends and thus capturing market attentionSome analysts speculate that by 2025, ASIC chips may even surpass GPUs in terms of investment value.

In responding to inquiries from investors, Su explained that diverse computational workloads require tailored processing capabilities

In the realm of AI, the variety of workloads—including large, medium, and small models designed for both training and inference—necessitates the availability of various chip types, encompassing GPUs, CPUs, ASICs, and FPGAs (Field-Programmable Gate Arrays).

“Within our projected total market size exceeding $500 billion, ASICs represent a portionHowever, I believe that AI algorithms continue to evolve, indicating that ASIC chips will constitute a smaller portion of the overall landscape as they are optimized for specific workloadsGPUs, with their higher programmability, are better positioned to adapt to evolving algorithm trends and, thus, are likely to secure a more substantial market share,” she analyzed.

However, Su highlighted that AMD's product portfolio encompasses a variety of chip types—including GPUs, CPUs, and ASICs—and that discussions with clients regarding ASIC-related projects are ongoing, reflecting a desire for a partner capable of delivering comprehensive computing solutions.

When asked about the potential alterations in demand for ASICs, Su strongly refuted the notion, asserting that customers appreciate AMD's support for inference tasks while desiring capabilities for training applications

To this end, AMD has laid out a gradual rollout roadmap.

“ASIC chips represent a critical component of AMD's toolkit, and we have been crafting customized solutions for many years,” she emphasized, noting that customers seek to leverage AMD's foundational intellectual property for innovation while also expecting unique capabilities that differentiate AMD from other chip manufacturersThus, AMD's product range continues to evolve, incorporating networks and integrated capacities that meld CPU and GPU technologies.

The meteoric rise of DeepSeek has sparked discussions regarding a potential reduction in demand for AI chipsIn this context, Su shared, “The past few weeks have been exhilarating, marked by successive milestones from DeepSeek, to the announcement of the 'Stargate' plan by the U.S., along with information releases from the Allen Institute, reflecting the speed of innovation and advancement in the AI domain.”

“Regarding DeepSeek, we believe that innovations in models and algorithms will substantially aid in driving AI into the mainstream

New methodologies for training and inference are showing potential to achieve these goals with reduced infrastructure, thus greatly expanding the potential applications and deployments of AI,” she asserted, pointing to the remarkable outcomes facilitated by support for open-source initiatives and progress made in adopting open-source models.

On the matter of the overall market cycle, Su maintains an optimistic outlookThe recent investments associated with OpenAI and the “Stargate” initiative signify considerable forthcoming infrastructure investments in AI, heralding the promise of further innovations.

As for the data center segment, Su indicated expectations for strong double-digit growth overall in 2025, with the server product lines and data center GPU product lines both contributing positivelyThe company is committed to advancing its GPU business and attracting new clients