AMD's investments in artificial intelligence are under examination by investors as major technology companies transition to custom chip solutions.

AMD investors are gearing up to scrutinize the chip maker's AI strategy when it releases its fourth-quarter results on Tuesday. With major tech companies moving towards custom silicon, there are growing concerns about AMD's role in the AI infrastructure landscape.

Analysts predict that AMD's revenue for the December quarter will jump over 22% to $7.53 billion. However, the company's growth is overshadowed by Nvidia's stronghold in the AI chip sector and the trend of tech giants like Microsoft, Amazon, and Meta creating their own custom chips.

Ryuta Makino, an analyst at Gabelli Funds, noted that investors view "customer silicon and Nvidia as the future of the AI chip market." Customer silicon refers to chips tailored for specific clients, as opposed to standard processors.

The progress made by Chinese AI startup DeepSeek, which has developed models that can compete with or even surpass Western counterparts at lower costs, has also sparked worries about the significant spending on AI infrastructure that has been fueling a surge in chipmaker stocks.

Companies like Microsoft, Amazon, and Meta are increasingly investing in their own silicon to handle the massive data processing needs of generative AI, with all three having launched new AI chip versions last year.

This shift has been beneficial for Broadcom and Marvell Technology, which supply custom AI processors to hyperscalers.

Broadcom's CEO, Hock Tan, mentioned that the AI sector could represent a $90 billion revenue opportunity by 2027.

While Broadcom's shares more than doubled last year and Marvell's rose about 83%, AMD saw a decline of 18% in 2024.

Nvidia's strong grip on the AI chip market, along with its proprietary CUDA software—widely used by developers—will likely help it weather the growing trend of custom chip adoption, according to Ben Bajarin, CEO of Creative Strategies.

The hefty price tag of switching chip suppliers is a major hurdle for AMD as it tries to gain more ground in the market.

On the bright side, the drive to create advanced AI models might ease some worries, especially with Big Tech pouring tons of cash into AI.

Analysts from TD Cowen and Omdia's Alexander Harrowell predict that AMD could pull in as much as $10 billion from AI chip sales this year, which is double the company's own forecast of $5 billion for AI processor revenue in 2024.

In the data center chip sector, revenue is expected to soar nearly 82% to $4.15 billion in the fourth quarter, according to LSEG data, making it over half of AMD's total sales.

There's also been a struggle to keep up with the demand for AI chips.

While TSMC, the contract manufacturer, is ramping up its advanced packaging capacity—an important part of the AI supply chain—Mizuho analysts warn that Nvidia's push to produce its new "Blackwell" AI chips might hinder AMD's chances of securing enough manufacturing capacity.

AMD's PC division is projected to grow around 33% to $1.94 billion, steadily chipping away at Intel's market share.

Analysts have observed that PC manufacturers might be stocking up on chips in December in anticipation of possible tariffs from President Trump, which could give chipmakers a boost—this trend helped Intel surpass its fourth-quarter revenue estimates last week.

AMD's net income for the fourth quarter is expected to jump over 61.4% to $1.08 billion.