Nvidia (NASDAQ:NVDA), the worldwide leader in graphics and digital media processors, announced third-quarter earnings late last week. Excluding one-time items, they actually were pretty good. As a result, NVDA stock jumped 3.5% in heavy trading.

While the news has traders excited, I wouldn’t get carried away here. Nvidia’s stock is bouncing off 52-week lows for a reason. NVDA shareholders might want to consider getting out on the bounce and reinvesting the proceeds in Advanced Micro Devices (NYSE:AMD). Here’s why:

A Look Ahead

Nvidia’s third-quarter 2012 adjusted earnings per share were 31 cents — five cents higher than the Zacks consensus estimate. On the top line, its revenue grew 26.4% year-over-year to $1.07 billion. More relevant was the 4.9% increase from the second quarter. No doubt these results are better than expected.

But when it came to providing an outlook for the fourth quarter, all Nvidia could come up with was revenues flat with the third quarter. The company was upbeat in its conference call, noting that its Tegra mobile processor for phones and tablets saw revenues increase 14% to $191 million. However, the fact that Nvidia CEO Jen-Hsun Huang was “surprised” by Amazon‘s (NASDAQ:AMZN) Kindle Fire makes you wonder if the company is just putting on a brave face. You’d think the company would have known that one of its biggest competitors — Texas Instruments (NYSE:TXN) — had the inside track.

Analyst Pessimism

It’s not very good — and that’s taking into account Nvidia’s earnings report. Prior to the earnings announcement, only 12 analysts out of 35 rated NVDA stock a “buy.” Furthermore, the consensus price target for 12 months is $16 per share. That’s not very much higher than where it sits as of this writing. Nvidia has done an admirable job recovering from its 52-week low of $11.47, which it hit Oct. 4. However, every time NVDA has gotten near the $16 level since July, it has headed back down almost immediately, and now its 200-day moving average is turning below the $16-$17 level. I’m not a technical analyst, but if it breaks that, look out below.

Now back to the analysts. MKM Partners is worried about Nvidia losing Motorola as a customer, in addition to losing out on the Kindle Fire, and rates NVDA “neutral.” Think Equity believes Nvidia’s growth expectations are already priced into the stock, and as a result it is maintaining its $10 price target and “hold” rating. UBS, on the other hand, is lowering its estimates for Nvidia through 2013 while maintaining its “hold” rating and $15.50 price target. I’m also not an expert in the chip business, but these analyst reports don’t sound good at all. NVDA shareholders might want to take profits until further notice.

The Apple Effect

I know it’s pie-in-the-sky thinking, but why couldn’t Apple (NASDAQ:AAPL) buy AMD? Or more aptly, why wouldn’t it? From everything I’ve read about AMD, the consensus is that the company makes a pretty good processor. Furthermore, Apple already has tested AMD processors in the MacBook Air. So worried was Intel (NASDAQ:INTC) about this that it established a $300 million fund to invest in companies making ultrabooks, similar to Apple’s tiny notebook.

In terms of market share, Intel still has nothing to worry about. In the third quarter, it held 80.3% market share to AMD’s 18.8%. But that’s the beauty of a potential deal. If Apple did acquire AMD, the balance of power would become far more equitable. Especially when you consider much of Intel’s dominance has come through questionable tactics, including $6 billion in payments to Dell (NASDAQ:DELL) to get it to not buy AMD processors.

Streamlining Operations

AMD recently announced that it was cutting 10% of its work force to become more efficient. Most of the layoffs won’t be from the engineering side of the business. According to the company, the moves will save $200 million in 2012 — most of which will be reinvested back into its mobile business, which grew 35% in the latest quarter. It’s interesting that a company that’s increasing revenues and earnings would be making such drastic cuts, but obviously AMD’s relatively new CEO, Rory Read, wants to put his stamp on the business. Conversely, it could be preparing itself for a courtship. Time will tell.

Bottom Line

Both stocks are up and down more than yo-yos. Who knows where they’ll go next? All I know is that AMD appears to be a better value than Nvidia, and even the faintest hope of an Apple buyout makes it awfully enticing.

As of this writing, Will Ashworth did not own a position in any of the aforementioned stocks.