Data Center Processor Chip Revenue Flattens: Intel, AMD and NVidia in the news

Despite dramatic year-over-year revenue increases in 2022, so far to date, sequential quarter-over-quarter data center processor chip revenue increases has been hard to come by. It may be just temporary, but reports also indicate that planned data center capital expenditures may flatten or even drop in 2023.

A Look at the Numbers

But don’t let the numbers in table one fool you. There is more to the data center processor market than meets the eye. Data center processor vendors don’t necessarily classify sales to neighborhood or business campus data centers as data center sales. Edge data center sales and even sales to supercomputer processing centers can be classified as either AI, Edge, data center or high performance computing (HPC) revenue

**From the StatisticsMatrix’s Semiconductor Worldwide Database**

The table suggests that the data center processor chip market has stabilized even after one considers how data center processor revenue is classified. There are other companies in this market like ARM and Taiwan Semiconductor, but ARM does not have a significant share. Taiwan Semiconductor acts as a foundry (manufacturing supplier of chips) to both the data center processor semiconductor companies and the data center operator companies. Large technology companies that have large data center operations like Google, Facebook and Amazon are or have developed data center processor chips. Whether or not these conglomerate have any substantial revenue from their in-house data center processor chips is a open question.

More so the table indicates that data center processor revenue has stabilized at about $40 billion a year. With the drop in PC processor chip sales it still doesn’t look good for the data center processor vendors. All three vendors depend on PC processor chip sales for a substantial amount of their revenue. This would imply that earnings, at best have flattened at these companies. And with flattening earnings and growth optimism fading stock price earnings multiples often go down.

Silver Lining in the Cloud

Hope is not lost for investors though if these companies reduce costs (invariably through layoffs, pay cuts and more). With those measures earnings have the potential to still grow and may be more than enough to significantly lift share prices. However, investors might also want to see dividends, which will decrease earnings. With increased dividends and no-growth in revenues, investors may just rethink the price earnings ratio. Intel, with a nice dividend has seen its price earnings ratio go from 5 to 15. As well, AMD’s price earnings ratio is now over 100 and NVidia is well over 70.

Current thinking is that the day of mammoth data centers is over. The mammoth data centers may just disaggregate themselves into hundreds of much smaller and even portable neighborhood and campus Edge data centers. Presently, the Edge look like its the new growth market. However, the big question is whether or not recently won Edge sales will make up for sales lost at the mammoth data centers.

Because of the recent excess inventory in office space, much smaller Edge data centers have many lower cost new homes to go to. Furthermore, with more performance per dollar from the latest data center processors, the cost of entry into the Edge data center market looks like it will be significantly less than in the past. Whether or not the major data center operators see Edge data centers as more cost-effective than highly capital intensive mammoth data centers is open for debate.