Advanced Micro Devices (AMD) is laying off approximately 1,000 employees, equating to roughly 4% of its global workforce, as part of a strategic shift toward increasing investment in artificial intelligence (AI) chip development. This move is seen as a direct response to the growing demand for AI technology and the rising competition with industry leader Nvidia.

An AMD spokesperson confirmed the layoffs to Reuters, explaining that the decision was made to better align the company’s resources with its largest growth opportunities. "As part of aligning our resources with our largest growth opportunities, we are taking a number of targeted steps," the spokesperson stated.

This decision comes as AMD’s data center segment, which includes its AI graphics processors, is experiencing significant growth. In the September quarter, revenue from this segment surged more than 100%, driven by an increase in demand for chips that support AI applications, such as OpenAI’s generative AI model, ChatGPT. This highlights the growing need for powerful processors that can handle the intense computational requirements of AI systems.

In contrast, AMD’s personal computer segment posted a 29% increase in revenue, while the company’s gaming division faced a sharp decline. Gaming sales dropped by nearly 69% in the same period, underscoring the challenges AMD faces in some of its other business units.

Looking forward, analysts predict that AMD’s data center business will remain a key growth driver. In fact, the company’s data center unit is expected to see growth of 98% in 2024, significantly outpacing its overall revenue growth forecast of just 13%. The demand for AI chips from hyperscalers like Microsoft, which operate large cloud infrastructures, is expected to continue propelling this segment’s expansion.

To meet this demand, AMD is ramping up production of its new MI325X AI chip, with mass production slated to begin in the fourth quarter of this year. However, manufacturing AI chips comes with its own set of challenges. It requires significant capital investment in production capacity, which has contributed to a nearly 9% increase in AMD’s research and development costs during the third quarter. Additionally, the company’s total cost of sales rose by 11%, further reflecting the financial pressures of scaling up AI chip production.

Despite the company’s efforts to prioritize AI and capitalize on the growth in its data center market, AMD has faced challenges in the stock market. The company’s stock has dropped by over 3% this year, a reflection of the broader pressures facing the semiconductor industry and the competition within the AI sector.