Battleground: Analysts split on what Tesla partnership means for AMD, Nvidia

Following yesterday's report that Tesla (TSLA) is working with AMD (AMD) on self-driving Artificial Intelligence chips, several Wall Street analysts commented on the news. While some were bullish on the partnership, with Jefferies analyst Mark Lipacis saying it would be "a critical win" for AMD, others like Bank of America Merrill Lynch argued that Tesla's reported shift to AMD from Nvidia (NVDA) has limited impact on either. PARTNERSHIP REPORT: According to a report by CNBC last night, Tesla is using AMD intellectual property as it progresses toward developing its own Artificial Intelligence chip for autonomous driving in its cars. More than 50 people within Tesla are working on the initiative, which will likely reduce its reliance on Nvidia products, the report added. 'CRITICAL WIN' FOR AMD: In a research note to investors this morning, Jefferies' Lipacis pointed out that a partnership between Tesla and AMD would make sense, given that former chief AMD MPU architect Jim Keller left AMD to become Tesla's Head of Autopilot in early 2016. While the analyst would not expect shipments of AMD chips to Tesla to have a material impact near-term to the former's bottom line, he thinks this would constitute "a critical win" for AMD as it would support his thesis that with its parallel processing GPUs, AMD is a beneficiary of the "4th Tectonic Shift" in computing. Additionally, Lipacis believes the headline risk to Nvidia in the near-term will not be favorable, but does not see a clear long-term risk. The analyst reiterated a Buy rating and $19 price target on AMD shares. Meanwhile, his peer at Deutsche Bank argued that if the CNBC report is true, any meaningful financial benefit to AMD would likely be observed "many years into the future." Analyst Ross Seymore pointed out that AMD would be the third preferred processor provider to Tesla within the last year as the electric carmaker transitioned from Mobileye to Nvidia in the second half of 2016. 'LITTLE RISK' TO NVIDIA: Tesla's partnership with AMD is a headline rather than estimate risk for Nvidia and its Automotive Platform estimates before calendar 2019/fiscal 2020, by which time other partners seem likely to more than offset any Tesla-related losses, B. Riley analyst Craig Ellis told investors. The analyst argued that the development has the potential to be a "modest fundamental and psychological negative" for Nvidia in the intermediate-term, but he believes the company remains the dominant autopilot solutions provider with a "substantial competitive moat and very strong developer momentum." Ellis added that Nvidia has announced autopilot partnerships with Mercedes-Benz (DDAIF), Toyota (TM), Volkswagen's (VLKAY) Audi group and Volvo (VOLVY) year-to-date. Meanwhile, BofA Merrill Lynch analyst Vivek Arya said that the reports Tesla is considering a shift to internal chips from Nvidia's will have limited material impact on either near-term. The analyst pointed out that Tesla accounts for less than 1% of Nvidia sales and has a much bigger opportunity with other automakers, such as Toyota and Audi. Meanwhile, the potential win for AMD is "more positive for perception than in numbers." In a research note of his own, RBC Capital analyst Mitch Steves told investors that he views this announcement as similar to dynamics he anticipates occurring in the Data center, namely AMD winning some share while Nvidia remains as the "de-facto standard and market share leader." Overall, the analyst noted that he views the announcement as a near-term concern that should not impact Nvidia's story over the next several years. Steves expects Nvidia to continue to work with Tesla and remain the dominant chip provider to the automaker. PRICE ACTION: Shares of AMD, which spiked late yesterday, are about 1% lower to $13.60 in morning trading. Meanwhile, Nvidia's stock has dropped over 4% to $178.17.