How AMD became a chip giant and leapfrogged Intel after years of playing catch-up
Advanced Micro Devices made history this year when it surpassed Intel by market cap for the first time ever. Intel has long held the lead in the market for computer processors, but AMD’s ascent results from the company branching out into entirely new sectors.
In one of the biggest semiconductor acquisitions in history, AMD purchased adaptive chip company Xilinx in February for $49 billion. Now, AMD chips are in two Tesla models, NASA’s Mars Perseverance land rover, 5G cell towers and the world’s fastest supercomputer.
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“AMD is beating Intel on all the metrics that matter, and until and unless Intel can fix its manufacturing, find some new way to manufacture things, they will continue to do that,” said Jay Goldberg, semiconductor consultant at D2D Advisory.
But a decade ago, analysts had a very different outlook for AMD.
“It was almost a joke, right? Because for decades they had these incredible performance problems,” Goldberg said. “And that’s changed.”
CNBC sat down with AMD CEO Lisa Su to hear about her company’s remarkable comeback, and huge bets on new types of chips in the face of a PC slump, fresh restrictions on exports to China and shifting industry trends.
‘Real men have fabs’
AMD was founded in 1969 by eight men, chief among them Jerry Sanders. The famously colorful marketing executive had recently left Fairchild Semiconductor, which shares credit for the invention of the integrated circuit.
“He was one of the best salesmen that Silicon Valley had ever seen,” said Stacy Rasgon, semiconductor analyst at Bernstein Research. “Stories of lavish parties that they would throw. And there’s one story about him and his wife coming down the stairs of the turret at the party in matching fur coats.”
AMD Co-Founder Jerry Sanders poses at the original headquarters of Advanced Micro Devices, or AMD, in Sunnyvale, California, in 1969
AMD
He also coined an infamous phrase about chip fabrication plants, or fabs.
“Jerry Sanders was very famous for saying, ‘Real men have fabs,’ which obviously is a comment that is problematic on a number of levels and has largely been disproven by history,” Goldberg said.
As technology advances, making chips has become prohibitively expensive. It now takes billions of dollars and several years to build a fab. AMD now designs and tests chips and has no fabs.
“When you think about what do you need to do to be world class and design, it’s a certain set of skills,” Su said. “And then what do you need to do to be world class In manufacturing? It’s a different set of skills and the business model is different, the capital model is different.”
Back in the ’70s, AMD was pumping out computer chips. By the ’80s, it was a second-source supplier for Intel. After AMD and Intel parted ways, AMD reverse engineered Intel’s chips to make its own products that were compatible with Intel’s groundbreaking x86 software. Intel sued AMD, but a settlement in 1995 gave AMD the right to continue designing x86 chips, making personal computer pricing more competitive for end consumers.
In 2006, AMD bought major fabless chip company ATI for $5.4 billion. Then in 2009, AMD broke off its manufacturing arm altogether, forming GlobalFoundries.
“That’s when their execution really started to take off because they no longer had to worry about the foundry side of things,” Goldberg said.
GlobalFoundries went public in 2021 and remains a top maker of the less advanced chips found in simpler components like a car’s anti-lock brakes or heads-up display. But it stopped making leading-edge chips in 2018. For those, AMD turned to Taiwan Semiconductor Manufacturing Co., which now makes all of AMD’s most advanced chips.
Catching Intel
AMD only has major competition from two other companies when it comes to designing the most advanced microprocessors: Nvidia in graphics processing units, GPUs, and Intel in central processing units, CPUs.
While AMD controls far less GPU and CPU market share than Nvidia and Intel, respectively, it’s made remarkable strides since moving away from manufacturing and reducing capital expenditure.
Meanwhile, Intel doubled down on manufacturing last year, committing $20 billion for new fabs in Arizona and up to $100 billion in Ohio, for what it says will be the world’s largest chip-making complex. But the projects are still years away from coming online.
“Intel is just not moving forward fast enough,” Goldberg said. “They’ve said they expect to continue to lose share in next year and I think we’ll see that on the client side. And that’s helped out AMD tremendously on the data center side.”
AMD’s Zen line of CPUs, first released in 2017, is often seen as the key to the company’s recent success. Su told CNBC it’s her favorite product. It’s also what analysts say saved AMD from near bankruptcy.
“They were like literally, like probably six months away from the edge and somehow they pulled out of it,” Rasgon said. “They have this Hail Mary on this new product design that they’re still selling like later generations of today, they call it Zen is their name for it. And it worked. It had a massively improved performance and enabled them to stem the share losses and ultimately turn them around.”
AMD CEO Lisa Su shows the newly released Genoa CPU, the company’s 4th generation EPYC processor, to CNBC’s Katie Tarasov at AMD’s headquarters in Santa Clara, California, on November 8, 2022
Jeniece Pettitt
Among the Zen products, AMD’s EPYC family of CPUs made monumental leaps on the data center side. Its latest, Genoa, was released earlier this month. AMD’s data center customers include Amazon Web Services, Google Cloud, Oracle, IBM and Microsoft Azure.
“If you looked at our business five years ago, we were probably more than 80% – 90% in the consumer markets and very PC-centric and gaming-centric,” Su said. “As I thought about what we wanted for the strategy of the company, we believed that for high-performance computing, really the data center was the most strategic piece of the business.”
AMD’s revenue more than tripled between 2017 and 2021, growing from $5.3 billion to over $16 billion. Intel’s annual revenue over that stretched, meanwhile, increased about 25% from close to $63 billion in 2017 to $79 billion last year.
Geopolitical concerns and PC slump
AMD’s success at catching up to Intel’s technological advances is something many attribute to Su, who took over as CEO in 2014. AMD has more than tripled its employee count since then. Su was Fortune’s #2 Business Person of the Year in 2020 and the recipient of three of the semiconductor industry’s top honors. She also serves on President Joe Biden’s Council of Advisors on Science on Technology, which pushed hard for the recent passage of the CHIPS Act. It sets aside $52 billion for U.S. companies to manufacture chips domestically instead of overseas.
“It’s a recognition of just how important semiconductors are to both economic prosperity as well as national security in the United States,” Su said.
With all the world’s most advanced semiconductors currently made in Asia, the chip shortage highlighted the problems of overseas dependency, especially amid continued tension between China and Taiwan. Now, TSMC is building a $12 billion 5-nanometer chip fab outside Phoenix.
“We’re pleased with the expansion in Arizona,” Su said. “We think that’s a great thing and we’d like to see it expand even more.”
Earlier this month, the Biden administration enacted big new bans on semiconductor exports to China. AMD has about 3,000 employees in China and 25% of its sales were to China last year. But Su says the revenue impact has been “very small.”
“When we look at the most recent regulations, they’re not significantly impacting our business,” Su said. “It does affect some of our highest-end chips that are used in sort of AI applications. And we were not selling those into China.”
What is hurting AMD’s revenue, at least for now, is the PC slump. In its third-quarter earnings report earlier this month, AMD missed expectations, shortly after Intel warned of a soft fourth quarter. PC shipments were down nearly 20% in the third quarter, the steepest decline in more than 20 years.
“It’s down a bit more than perhaps we expected,” Su said. “There is a cycle of correction which happens from time to time, but we’re very focused on the long-term road map.”
Going custom
It’s not just PC sales that are slowing. The very core of computer chip technology advancement is changing. An industry rule called Moore’s Law has long dictated that the number of resistors on a chip should double about every two years.
“The process that we call Moore’s Law still has at least another decade to go, but there’s definitely, it’s slowing down,” Goldberg said. “Everybody sort of used CPUs for everything, general purpose compute, but that’s all slowed down. And so now it suddenly makes sense to do more customized solutions.”
Former Xilinx CEO Victor Peng and AMD CEO Lisa Su on stage in Munich, Germany, at the
AMD
That’s why AMD acquired Xilinx, known for its adaptive chips called Field-Programmable Gate Arrays, or FPGAs. Earlier this year, AMD also bought cloud startup Pensando for $1.9 billion.
“We can quibble about some of the prices they paid for some of these things and what the returns will look like,” said Goldberg, adding that the acquisitions were ultimately a good decision. “They’re building a custom compute business to help their customers design their own chips. I think that’s a very, it’s a smart strategy.”
More and more big companies are designing their own custom chips. Amazon has its own Graviton processors for AWS. Google designs its own AI chips for the Pixel phone and a specific video chip for YouTube. Even John Deere is coming out with its own chips for autonomous tractors.
“If you really look underneath what’s happening in the chip industry over the last five years, everybody needs more chips and you see them everywhere, right?” Su said. “Particularly the growth of the cloud has been such a key trend over the last five years. And what that means is when you have very high volume growth in chips, you do want to do more customization.”
Even basic chip architecture is at a transition point. AMD and Intel chips are based on the five-decade-old x86 architecture. Now ARM architecture chips are growing in popularity, with companies like Nvidia and Ampere making major promises about developing Arm CPUs, and Apple switching from Intel to self-designed ARM processors.
“My view is it’s really not a debate between x86 and Arm,” Su said. “You’re going to see basically, these two are the most important architectures out there in the market. And what we’ve seen is it’s really about what you do with the compute.”
For now, analysts say AMD is in a strong position as it diversifies alongside its core business of x86 computing chips.
“AMD should fare much better in 2023 as we come out of the cycle, as their performance gains versus Intel start to become apparent, and as they start to build out on some of these new businesses,” Goldberg said.
Intel did not immediately respond to a request for comment.
Correction: “And we were not selling those into China,” said Lisa Su, AMD’s CEO. Her quote has been updated to reflect a typo that appeared in an earlier version of this article.
Alex Karp, CEO of Palantir Technologies speaks during the Digital X event on September 07, 2021 in Cologne, Germany.
Andreas Rentz | Getty Images
Palantir shares continued their torrid run on Friday, soaring as much as 9% to a record, after the developer of software for the military announced plans to transfer its listing to the Nasdaq from the New York Stock Exchange.
The stock jumped past $64.50 in afternoon trading, lifting the company’s market cap to $147 billion. The shares are now up more than 50% since Palantir’s better-than-expected earnings report last week and have almost quadrupled in value this year.
Palantir said late Thursday that it expects to begin trading on the Nasdaq on Nov. 26, under its existing ticker symbol “PLTR.” While changing listing sites does nothing to alter a company’s fundamentals, board member Alexander Moore, a partner at venture firm 8VC, suggested in a post on X that the move could be a win for retail investors because “it will force” billions of dollars in purchases by exchange-traded funds.
“Everything we do is to reward and support our retail diamondhands following,” Moore wrote, referring to a term popularized in the crypto community for long-term believers.
Moore appears to have subsequently deleted his X account. His firm, 8VC, didn’t immediately respond to a request for comment.
Last Monday after market close, Palantir reported third-quarter earnings and revenue that topped estimates and issued a fourth-quarter forecast that was also ahead of Wall Street’s expectations. CEO Alex Karp wrote in the earnings release that the company “absolutely eviscerated this quarter,” driven by demand for artificial intelligence technologies.
U.S. government revenue increased 40% from a year earlier to $320 million, while U.S. commercial revenue rose 54% to $179 million. On the earnings call, the company highlighted a five-year contract to expand its Maven technology across the U.S. military. Palantir established Maven in 2017 to provide AI tools to the Department of Defense.
The post-earnings rally coincides with the period following last week’s presidential election. Palantir is seen as a potential beneficiary given the company’s ties to the Trump camp. Co-founder and Chairman Peter Thiel was a major booster of Donald Trump’s first victorious campaign, though he had a public falling out with Trump in the ensuing years.
When asked in June about his position on the 2024 election, Thiel said, “If you hold a gun to my head I’ll vote for Trump.”
Thiel’s Palantir holdings have increased in value by about $3.2 billion since the earnings report and $2 billion since the election.
In September, S&P Global announced Palantir would join the S&P 500 stock index.
Analysts at Argus Research say the rally has pushed the stock too high given the current financials and growth projections. The analysts still have a long-term buy rating on the stock and said in a report last week that the company had a “stellar” quarter, but they downgraded their 12-month recommendation to a hold.
The stock “may be getting ahead of what the company fundamentals can support,” the analysts wrote.
Charles Liang, chief executive officer of Super Micro Computer Inc., during the Computex conference in Taipei, Taiwan, on Wednesday, June 5, 2024. The trade show runs through June 7.
Annabelle Chih | Bloomberg | Getty Images
Super Micro Computer could be headed down a path to getting kicked off the Nasdaq as soon as Monday.
That’s the potential fate for the server company if it fails to file a viable plan for becoming compliant with Nasdaq regulations. Super Micro is late in filing its 2024 year-end report with the SEC, and has yet to replace its accounting firm. Many investors were expecting clarity from Super Micro when the company reported preliminary quarterly results last week. But they didn’t get it.
The primary component of that plan is how and when Super Micro will file its 2024 year-end report with the Securities and Exchange Commission, and why it was late. That report is something many expected would be filed alongside the company’s June fourth-quarter earnings but was not.
The Nasdaq delisting process represents a crossroads for Super Micro, which has been one of the primary beneficiaries of the artificial intelligence boom due to its longstanding relationship with Nvidia and surging demand for the chipmaker’s graphics processing units.
The one-time AI darling is reeling after a stretch of bad news. After Super Micro failed to file its annual report over the summer, activist short seller Hindenburg Research targeted the company in August, alleging accounting fraud and export control issues. The company’s auditor, Ernst & Young, stepped down in October, and Super Micro said last week that it was still trying to find a new one.
The stock is getting hammered. After the shares soared more than 14-fold from the end of 2022 to their peak in March of this year, they’ve since plummeted by 85%. Super Micro’s stock is now equal to where it was trading in May 2022, after falling another 11% on Thursday.
Getting delisted from the Nasdaq could be next if Super Micro doesn’t file a compliance plan by the Monday deadline or if the exchange rejects the company’s submission. Super Micro could also get an extension from the Nasdaq, giving it months to come into compliance. The company said Thursday that it would provide a plan to the Nasdaq in time.
A spokesperson told CNBC the company “intends to take all necessary steps to achieve compliance with the Nasdaq continued listing requirements as soon as possible.”
While the delisting issue mainly affects the stock, it could also hurt Super Micro’s reputation and standing with its customers, who may prefer to simply avoid the drama and buy AI servers from rivals such as Dell or HPE.
“Given that Super Micro’s accounting concerns have become more acute since Super Micro’s quarter ended, its weakness could ultimately benefit Dell more in the coming quarter,” Bernstein analyst Toni Sacconaghi wrote in a note this week.
A representative for the Nasdaq said the exchange doesn’t comment on the delisting process for individual companies, but the rules suggest the process could take about a year before a final decision.
A plan of compliance
The Nasdaq warned Super Micro on Sept. 17 that it was at risk of being delisted. That gave the company 60 days to submit a plan of compliance to the exchange, and because the deadline falls on a Sunday, the effective date for the submission is Monday.
If Super Micro’s plan is acceptable to Nasdaq staff, the company is eligible for an extension of up to 180 days to file its year-end report. The Nasdaq wants to see if Super Micro’s board of directors has investigated the company’s accounting problem, what the exact reason for the late filing was and a timeline of actions taken by the board.
The Nasdaq says it looks at several factors when evaluating a plan of compliance, including the reasons for the late filing, upcoming corporate events, the overall financial status of the company and the likelihood of a company filing an audited report within 180 days. The review can also look at information provided by outside auditors, the SEC or other regulators.
Last week, Super Micro said it was doing everything it could to remain listed on the Nasdaq, and said a special committee of its board had investigated and found no wrongdoing. Super Micro CEO Charles Liang said the company would receive the board committee’s report as soon as last week. A company spokesperson didn’t respond when asked by CNBC if that report had been received.
If the Nasdaq rejects Super Micro’s compliance plan, the company can request a hearing from the exchange’s Hearings Panel to review the decision. Super Micro won’t be immediately kicked off the exchange – the hearing panel request starts a 15-day stay for delisting, and the panel can decide to extend the deadline for up to 180 days.
If the panel rejects that request or if Super Micro gets an extension and fails to file the updated financials, the company can still appeal the decision to another Nasdaq body called the Listing Council, which can grant an exception.
Ultimately, the Nasdaq says the extensions have a limit: 360 days from when the company’s first late filing was due.
A poor track record
There’s one factor at play that could hurt Super Micro’s chances of an extension. The exchange considers whether the company has any history of being out of compliance with SEC regulations.
Between 2015 and 2017, Super Micro misstated financials and published key filings late, according to the SEC. It was delisted from the Nasdaq in 2017 and was relisted two years later.
Super Micro “might have a more difficult time obtaining extensions as the Nasdaq’s literature indicates it will in part ‘consider the company’s specific circumstances, including the company’s past compliance history’ when determining whether an extension is warranted,” Wedbush analyst Matt Bryson wrote in a note earlier this month. He has a neutral rating on the stock.
History also reveals just how long the delisting process can take.
Charles Liang, chief executive officer of Super Micro Computer Inc., right, and Jensen Huang, co-founder and chief executive officer of Nvidia Corp., during the Computex conference in Taipei, Taiwan, on Wednesday, June 5, 2024.
Annabelle Chih | Bloomberg | Getty Images
Super Micro missed an annual report filing deadline in June 2017, got an extension to December and finally got a hearing in May 2018, which gave it another extension to August of that year. It was only when it missed that deadline that the stock was delisted.
In the short term, the bigger worry for Super Micro is whether customers and suppliers start to bail.
Aside from the compliance problems, Super Micro is a fast-growing company making one of the most in-demand products in the technology industry. Sales more than doubled last year to nearly $15 billion, according to unaudited financial reports, and the company has ample cash on its balance sheet, analysts say. Wall Street is expecting even more growth to about $25 billion in sales in its fiscal 2025, according to FactSet.
Super Micro said last week that the filing delay has “had a bit of an impact to orders.” In its unaudited September quarter results reported last week, the company showed growth that was slower than Wall Street expected. It also provided light guidance.
The company said one reason for its weak results was that it hadn’t yet obtained enough supply of Nvidia’s next-generation chip, called Blackwell, raising questions about Super Micro’s relationship with its most important supplier.
“We don’t believe that Super Micro’s issues are a big deal for Nvidia, although it could move some sales around in the near term from one quarter to the next as customers direct orders toward Dell and others,” wrote Melius Research analyst Ben Reitzes in a note this week.
Super Micro’s head of corporate development, Michael Staiger, told investors on a call last week that “we’ve spoken to Nvidia and they’ve confirmed they’ve made no changes to allocations. We maintain a strong relationship with them.”
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