Seeking Alpha
Profile| Send Message|
( followers)

Next Era of computing Favors AMD

This article will discuss the developing long term trend in computing demand for more Graphic processing power (as provided by the GPU), versus traditional processing power derived from the Central processing Unit (CPU). Supporting evidence will be discussed that favors AMD as the biggest beneficiary of the next era in computing over its GPU rivals, Intel and Nvidia.

The key Difference between the GPU and CPU: Parallel Computing

Parallel computing allows many calculations to be performed simultaneously. This allows large problems to be divided into smaller ones, which can be solved concurrently, or in parallel. While Parallel computing has been employed for many years, mainly in supercomputers, its use is increasing due to physical constraints of traditional CPU threaded architecture.

Parallelism is the Future by Loyd Case

In this article by Loyd Case, Senior Editor PCWorld, from January 2012, he concludes with the following:

" CPUs will never go out of fashion. There will always be a need for linear computation, and some applications don't lend themselves to parallel computation. However, the future of the Internet and PCs is a highly visual one. Digital video, photography, and games may be the initial drivers for this, but the visual Internet, through standards like WebCL and HTML5 Canvas, will create more immersive experiences over the web. And much of the underlying programming for creating these experiences will be parallel in nature. GPUs, whether discrete or integrated on the CPU die, are naturals for this highly visual, parallel future. GPU computing is still in its infancy."

The Next Era of Computing Requires GPU processing

While most people think powerful GPUs are only for playing video games, they are wrong. The future of thin client devices, smart phones and Google (NASDAQ:GOOG) Glass, require video optimized Cloud servers to efficiently process real world info.

Now and in the future, broadband connectivity will increasingly allow consumer devices to harness powerful GPUs for processing and analyzing data, much the way our eyes, ears and brains function.

Instead of having to type or tap a screen, tiny powerful cameras and microphones send real world images and speech to a data center, for processing. While the CPU will still be part of the overall solution, real world data requires parallel processing from the GPU, for the most energy efficient and fastest processing. In order to achieve the best efficiency requires a closer linkage of the CPU and GPU together into what AMD calls an Accelerated Processing Unit (APU).

AMD and ARM create the HSA Foundation

The efficiency of the GPU has far outstripped the creation of software to utilize that power. In order to access the power of the GPU and allow it to function more efficiently with other processors, AMD and ARM (NASDAQ:ARMH) launched the HSA Foundation.

The importance of Heterogeneous Computing caused processor powerhouses Samsung (OTC:SSNLF) , Texas Instruments (NASDAQ:TXN), and Qualcomm (NASDAQ:QCOM) to join HSA as founding members. Each of these founding members is a leader in their respective area. ARM owns processor architecture that is used in 99% of all mobile devices. AMD is the co- leader [along with Nvidia (NASDAQ:NVDA)] in GPU architecture and related intellectual property. Qualcomm is the leading mobile processors company. Texas Instruments is the leader in Analog chips. Samsung is largest manufacturer of mobile devices, and the just behind Intel (NASDAQ:INTC) in total semiconductor sales.

While all of the other founding members will prosper from growth in Heterogeneous Computing, AMD will be the biggest beneficiary because accessing the efficiency and power of the GPU for analyzing and rendering real world info, is just beginning.

Voice is just now starting to function well enough for limited usage as a user interface. The Microsoft (NASDAQ:MSFT) X-Box One utilizes voice and gesture controls.

AMD Will be the Biggest Beneficiary

While all of the other founding members of the HSA will prosper from growth in Heterogeneous Computing, AMD will be the biggest beneficiary. The other areas are already in broad use throughout society, whereas powerful GPUs have mainly been relegated to use for hard core gamers. Accessing the efficiency and power of the GPU for analyzing and rendering real world info, is just beginning.

Voice is just now starting to function well enough for limited usage as a user interface. The Microsoft X-Box One utilizes voice and gesture controls, and also allows control from a smartphone or tablet. Apple, Google, and Samsung will not try to bring out competing products for the living room, all of which will need powerful CPUs for voice and gesture control.

The growth in "thin client" devices such as Google Glass will require that the GPU processing to be done in the cloud.

AMD Will Increase Cloud Server Chip Sales

Intel currently controls 95% of the server chip market, which generates over $10 billion a year in sales, with the remaining 5% coming from AMD. The increasing demand for GPU processing, combined with AMD's server experience, bold well for a large increase in AMD's share of the server market.

Not only will the next era of computing require the power of the GPU, it will require lower power consumption processors.

The biggest expense of Cloud data centers is energy. The combination of AMD's server experience and ARM's low power architecture, will produce server chips that gain market share from Intel's CPU based products.

Conclusion

The demand for more GPU processing favors both AMD and Nvidia, over other companies. AMD appears better positioned to gain server market share than Nvidia, because of their vast experience in this area.

AMD has a slightly larger revenue base than Nvidia, but AMD's enterprise value is $2 billion less than Nvidia's.

Nvidia has tremendous competition in mobile from Qualcomm, Apple (NASDAQ:AAPL), Samsung, and possibly Intel. AMD is currently designed into all 3 of the game consoles, which means that most of the new games will be optimized for AMD. Because the software is already optimized for AMD, this is an incentive for Apple, Google, Samsung, etc, to use AMD in their competing living room consoles.

While Intel has low end GPU technology, they have no market share in the high end GPU market. While Intel was able to design a chip with a higher end integrated GPU, the list price is 8 times that of the APUs that AMD is selling to Sony and Microsoft. Intel appears to be many cycles behind both AMD and Nvidia in GPU technology.

Because AMD's share price has pulled back about 30% in the last six weeks, they appear to be deeply oversold at this time. There are only a handful of buy recommendations, relative to 30 holds and sells, which leaves plenty of room for positive upgrades, as the long term GPU trend asserts itself.

Bottom line, AMD's shares offer excellent upside from both a long term and short term perspective.

Disclosure: I am long AMD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Next Era Of Computing Favors AMD