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Advanced Micro Devices Inc. (AMD - Free Report) is collaborating with Chinese internet giant Baidu (BIDU - Free Report) to focus on “optimizing” software for AMD’s Radeon Instinct GPUs in Baidu datacenters. We believe that the partnership will help the company sell more GPUs in the rapidly-growing Artificial Intelligence (AI) space.

AMD started shipping the Radeon Instinct GPUs in the second quarter of 2017. The GPUs combine the company’s strength in heterogeneous computing as well as its focus on using open-source software. The Instinct line-up comprises MI25, MI8 and MI6, which are based on the “Vega”, “Fiji” and “Polaris” GPU architectures.

The products use Radeon Open Compute project (ROCm), an open source coding language for AI systems, which now supports MIOpen 1.0. Moreover, the open source MIOpen GPU-accelerated library that supports machine intelligence frameworks including planned support of Caffe, TensorFlow and Torch is also available with the product line up.

We believe that the cost-effective products will boost AMD’s competitive position in the AI and machine learning market, which is currently dominated by NVIDIA (NVDA - Free Report) .

AMD’s stock has gained 64.2% in the last 12 months, substantially outperforming the 27.3% rally of the industry it belongs to.



Partnership to Boost AMD’s China Footprint

Despite Baidu’s long-standing relationship with NVIDIA, we believe that the company will aid AMD to penetrate the Chinese AI market going forward. Baidu is considered a pioneer of AI techniques along with Tencent and Alibaba (BABA - Free Report) . Notably, per Forbes, China-based companies absorbed more than 17% of all AI investments, second to the U.S.-based companies’ 66% in 2016.

Moreover, last year, Baidu spent $20-$30 billion on AI projects. The company’s focus on using AI techniques – machine learning, deep learning and natural language processing (NLP) – has helped it to provide more useful and personalized search results. The company is also using neural networks to effectively target online advertisements.

According to the National Development and Reform Commission statement (May 2016), China will increase investments on developing the AI sector and plans to create a market worth more than 100 billion yuan (US $15.26 billion) over the next three years. The programme will involve key projects such as intelligent home appliances, smart automobiles, intelligent unmanned systems, intelligent wearable devices and robots.

We believe that higher spending on AI will increase demand for GPUs, which is favorable for AMD.

AMD’s Expanding Product Portfolio: Key Catalyst

AMD is benefiting from strong sales for its recently released products like Ryzen CPU and Radeon Vega GPU products. The company recently unveiled its new Radeon RX Vega 56 and 64 graphics cards. Vega’s incredible speed and sleeker memory allocation & usage capabilities is anticipated to make AMD a potent force in the AI market.

Moreover, AMD has been gearing up to solidify footprint in the Virtual and augmented reality (VR/AR) market with Radeon and Ryzen chips. In April, the company acquired Nitero, which develops a wireless chip that enables transmission of data from desktop PCs to VR headsets. We believe that the addition of Nitero’s technology boosts AMD’s competitive prowess in the untethered VR market.

Further, strong adoption rate for AMD’s recently released EPYC processors is positive for the top line. The company’s partnerships with the likes of Tencent, JD.Com, Lenovo and Sugon will further expand market share, in our view.
 

Moreover, massive rise in cryptocurrency mining has also driven the demand for GPUs, which is positive for AMD.

Zacks Rank

Currently, AMD has a Zacks Rank #2 (Buy). You can seethe complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

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