Shares of processor giant Advanced Micro Devices (AMD -4.76%) surged this week, finishing Thursday trading 11.8% higher than at the beginning of the week, according to data from S&P Global Market Intelligence.

AMD has been successful over the past few years with renewed leadership in the CPU space, graphics GPUs and gaming expertise, and the addition of field programmable gate arrays (FPGAs) with the acquisition of Xilinx in early 2022.

However, its earnings report this week was really all about one thing: the MI300.

The MI300 is AMD's new artificial intelligence (AI) accelerator, which investors hope will become a worthy alternative to Nvidia (NVDA -3.00%) GPUs in the AI space.

While AMD's guidance actually came in lower than expected, positive commentary on the MI300 was enough to catapult the stock higher through the week.

Customers are trying out the MI300

In the third quarter, AMD's revenue grew 4% to $5.8 billion, and non-GAAP (adjusted) EPS also grew 4% to $0.70 per share. Each beat expectations. But the stock initially fell after the report dropped, as AMD's forward revenue guidance of $6.1 billion came up short of the $6.4 billion analysts had been expecting.

However, the stock began to rise once CEO Lisa Su began discussing the MI300, and that positivity continued through the rest of the week. On the conference call with analysts, Su noted that AMD had begun shipments of MI300A APUs designed for the El Capitan Exascale Supercomputer. Even more important to AMD's AI prospects, Su also noted large cloud computing customers had committed to deploying the MI300X GPUs and that those shipments would begin soon.

There had been some consternation among investors back in June when AMD unveiled the MI300 that AMD didn't announce an "anchor" cloud customer. But those fears seem to have abated.

Most importantly, Su actually gave revenue projections for the MI300 GPU in the fourth quarter and next year. In Q4, she expects $400 million in MI300 revenue, rising to exceed $2 billion in 2024. "This growth would make MI300 the fastest product to ramp to $1 billion in sales in AMD history," Su noted. Those numbers and commentary came as music to the market's ears.

So, why was Q4 guidance a little light? Well, the FPGA market is in a downturn right now. FPGAs have a lot of exposure to industrial customers, and while industrial chips were more resilient than PCs, phones, and data center chips in 2022, industrial-focused chips are now in a correction. However, the PC and data center corrections seem to be bottoming, with those markets now showing signs of turning up.

The AI market continues torrid growth, and interest rates may be topping

Clearly, the market rightly looked past the cyclical soft patch in FPGAs and focused on AMD's AI chip execution. That's because the AI chip market is forecast to be massive in the years ahead and, therefore, AMD's most important market for the foreseeable future. Su herself predicted earlier this year that the AI GPU market would grow at a 50% average growth rate, reaching $150 billion by 2027.

When combined with this week's positive commentary from Fed Chair Jay Powell on inflation, as well as the better-than-expected labor productivity gains in the third quarter, AMD could be set up nicely for 2024. Artificial intelligence revenue plus falling interest rates would be a good combination.