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Today AMD (NASDAQ:AMD) announced that the U.S. Department of Energy had chosen to partner with Cray and AMD to procure the world's largest and most expensive supercomputer ever. The deal is said to be worth a total of $600 million dollars and will be commissioned in early 2022.

The deal is a solid win for AMD as they will be supplying both a mixture of EPYC and Instinct processors, as well as the company will be given funding for the development of specific technologies related to emerging supercomputing trends.

EPYC and Instinct together in 'Frontier' Supercomputer

Before we look at why this is a such a big deal for AMD, first a little about the system itself. "Frontier", as it will be named, will be delivered by Cray, a company well known for its custom supercomputer systems, to the Oak Ridge National Laboratory in Tennessee and will be purchased by the Department of Energy. The system will be used in a wide range of activities ranging from modeling advanced medicinal molecules with thousands of atoms - up from only a few atoms at a time currently, simulating quantum computers, nuclear reactions, and more.

Frontier is planned for delivery in late 2021 with commissioning scheduled soon after for early 2022, and once brought online will be the fastest and most powerful (local) computing system in the world. The price tag is indeed steep, $600 million dollars, which makes it the most expensive to date ever purchased by the U.S. government.

The DoE RFQ allowed for 30 megawatts of power and Frontier will use up just about all of that. Each blade will consist of a single socket EPYC processor and four Radeon Instinct GPU accelerators. The CPU and four GPUs will be connected with the next generation of AMD's Infinity Fabric. Finally, the blades will be housed in Cray's Shasta cabinets, of which 100 will be installed and each will consume 300 killowatts, which combines to consume 30MW of power.

On the CPU side of things, AMD has said the system will be using a future generation of Zen CPU cores, and since we are looking at a delivery date of 2021 we are certainly looking at at least next-gen Zen 3 or perhaps Zen 4 cores. For the Instinct accelerators, AMD has a "next-gen" - meaning post-Graphics Core Next - GPU slated for 2020, and it's feasible these could wind up powering Instincts in Frontier.

Cowen Analyst: “This is no ordinary HPC [high performance computing] win, but rather an important long-term milestone for AMD’s datacenter strategy"

Almost a year ago during our coverage of AMD's Q2 2018 earnings, we noted that Dr. Lisa Su had named the datacenter as the firm's number 1 long term priority. AMD 's CEO has previously touched on the importance of EPYC in supercomputing applications:

[The future-gen Epycs] will have additional instructions in the microarchitecture as well as in the architecture itself for both optimization of AI as well as supercomputing workloads.

The deal will be worth a total of $600 million, however the system itself as delivered will cost $500 million, the additional $100 million is being given to AMD and Cray to develop some of the hardware going into the system. This feels similar to how AMD used Microsoft (NASDAQ:MSFT) and Sony money to develop some GPU tech over the years, and it's possible some of these DoE funds will go into developing the Instinct GPUs and their software ecosystem based on the Radeon Open Compute Platform (ROCm). In fact, ROCm is specifically called out as being allocated part of the $100M for programming and developing new extensions that will help with AI and advanced modeling efforts. If AMD needs one thing in the data center more than anything it's a software ecosystem robust enough to go toe-to-toe with NVIDIA's (NASDAQ:NVDA) mature CUDA platform. A massive cash infusion, given to AMD for just this purpose could be massive in terms of future value for the company.

Also important to note here is that the system will be replacing an Intel Xeon + Nvidia Tegra system called "Summit". Summit currently offers about 200 petaflops, while Frontier will deliver over 7 times that at 1,500 petaflops. Another note of interest is that the DoE actually plans to deploy a second Exascale system earlier in 2021, based on an all-Intel offering of Xeons and Intel Xe GPU accelerators that have yet to be completely developed. Surely Intel (NASDAQ:INTC) was aggressively bidding this project and an over half-a-billion-dollar contract going to AMD in the datacenter/supercomputer realm is a major win for Su and company. As an aside, for benchmark racers, the all-Intel "Aurora" will push 1.0 Exaflops while the all-AMD Frontier will push exactly 50 percent more power, 1.5 Exaflops.

Some analysts are using the Frontier as justification for giving AMD a price target of $36 a share, good for a 30 percent upside from current prices.

Matthew Ramsay, an analyst at Cowen stood by his Outperform rating for AMD stock, claiming that AMD is firmly back when it comes to high-performance computing. He wrote in a note to investors, "The supercomputing win...provides significant ammunition for AMD’s enterprise and data center sales forces to sell datacenter GPUs more broadly.” and further added that the deal is a "landmark win" for AMD. Ramsay reinforces his statement with the fact that the government, in evaluating vendor options, "did their due diligence" in looking at AMD's future roadmap.

We learned the following about the Intel Aurora deal which is worth $500 million - Cray is taking a $146 million chunk and Intel will take the remaining $354 million. If the balance remains so for this deal, which there is no reason to think why not, AMD could be pocketing $300 to $400 million dollars for the deal which is a huge chunk of revenue for them. Remember, last quarter AMD booked about $1.3 billion in total, a deal like this is a major blockbuster for the Santa Clara, CA-based semiconductor firm.

AMD shares were down 2.77 percent today amid a broader market sell-off. Shares of Advanced Micro Devices have gained 45 percent from the beginning of the year.