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Advanced Micro Devices (NASDAQ:AMD) shares spiked up after its CEO, Dr. Lisa Su, announced during AMD's Next Horizons event, that Amazon (NASDAQ:AMZN) would begin using its EPYC datacenter CPUs in a major way moving forward for its cloud Amazon Web Services business.
Shares traded as high as 8 percent up immediately after the announcement, but relaxed down to 4 percent up on the day.
AMD is showing proof it can command real market share with current first generation 14nm EPYC products
Amazon is deploying EPYC systems to host its Elastic Cloud Compute or 'EC2' instances. According to Amazon, the services provide "secure, resizable compute capacity in the cloud. It is designed to make web-scale cloud computing easier for developers."
This is a major win for AMD and is a legitimate milestone as the company continues to take enterprise and data center market share away from Intel, who has enjoyed a >99 percent position in the market as recently as a year or so ago. Amazon cites a 10 percent cost reduction by switching to EPYC servers versus their Intel (NASDAQ:INTC) Xeon counterparts.
Today's event both gave us the significant announcement about Amazon's usage of AMD's server chips, but it also pointed to the future. If AMD can actually displace its competitor in the highly lucrative data center with its current generation products, then things might get even more exciting next year once its much-anticipated second generation EPYC parts, forged with next-gen 7nm lithography and based on Zen 2 architecture, launch to the market.
We have excellent coverage here on the technical side of things for Zen 2 designs. In short, EPYC 2 is designed to compete with forward-looking Intel 'Ice Lake' parts, due sometime in 2020. AMD might be looking at both a cost, performance, and energy efficiency advantage for several calendar months or perhaps over a year, based on what we know of Intel's 10nm (Ice Lake) roadmap.
The implications are huge for AMD. If they can win market share with current parts which, offer slightly less performance at slightly less cost, at roughly the same energy efficiency, then a product that gets more competitive in all three metrics will be truly disruptive. AMD believes the data center is worth about $12 billion a year and is still growing. When you count on a very competitive EPYC 2 going after that same market, combined with the fact that AMD is on track to do a bit under $7 billion in revenue for 2018 in total across all its business lines, then you can't help but be excited about AMD's prospects moving forward. If they can capture 20 percent of the data center by the end of 2019, they would add over 30 percent to their top line 2018 revenue.