Advanced Micro Devices (NASDAQ:AMD) is doing well in 2019. Not only is it bringing out some great products, such as the next-generation Navi graphics card, but AMD stock price has climbed 65% this year.
AMD stock is definitely beating Nvidia (NASDAQ:NVDA) stock. So far this year, NVDA is up 15%, or one-quarter the return of AMD stock.
Despite AMD’s much stronger performance, analysts prefer Nvidia stock over Advanced Micro Devices stock.
According to The Wall Street Journal, 33 analysts have a rating on AMD stock. Of those 33, 42% (14) have an “overweight” or “buy” rating on the shares. As for Nvidia, 37 analysts have a rating on NVDA stock, with 62% (23) giving it an “overweight” or a “buy” rating. That’s a 16 percentage point gap in favor of Nvidia stock, despite all the positive news about AMD.
Also, the current average target price for NVDA stock is $182. 77, meaning that investors can theoretically gain 17% by buying the shares. Meanwhile, analysts have an average target price on Advanced Micro Devices stock of $29.29, more than a dollar below its current share price.
But that likely has been caused as much by the fact that AMD stock price has been climbing at a blistering pace over the past 18 months (it surged 80% last year) as by any belief that Nvidia is the stronger company.
We could argue day and night about the pros and cons of each stock and not come up with a winner. Nonetheless, the facts are the facts. Analysts prefer NVDA over AMD at the moment.
Here are a couple of reasons why.
Overly Optimistic
Earlier this month, Morgan Stanley upgraded AMD stock from “underweight” to “equal-weight” despite its misgivings about the shares.
“While our earnings concerns over the last 12 months have played out and 2H numbers still look high, the table is set well for 2020 and there are positive near-term catalysts. We still think there is too much short-term optimism, but we struggle with catalysts to remain UW [underweight],” Morgan Stanley analysts stated in a note to investors on June 6.
Even though Morgan Stanley also raised its price target from $17 to $28 on Advanced Micro Devices stock, it seems that the firm still has some misgivings about the company’s earnings outlook for the rest of this year. Given chip names seem to sell off considerably when they deliver worse-than-expected earnings, the analysts’ comments suggest that they believe the cart is ahead of the horse at this point.
No one should buy AMD stock in 2019 unless they’re planning to own it for the long haul. That’s because if any aspect of AMD’s earnings misses analysts’ consensus outlook when the company delivers its next quarterly earnings in July, AMD stock price will fall considerably. In such a scenario, AMD could drop to the mid or low $20s.
Nvidia Stock Is a No-Brainer
Like all chip stocks, Nvidia’s had its fair share of volatility in 2019. It lost 23% in May alone, prompting InvestorPlace’s Vince Martin to call the decline “overkill.”Martin suggested that, despite the hurdles NVDA is facing, it’s got great long-term potential.
I couldn’t agree more.
Recently, the CEO of investment advisory firm Strategic Wealth Partners, Mark Tepper, appeared on CNBC to talk about the chip makers. He had a lot of good things to say about Nvidia.
“With Nvidia, you’re getting best-of-breed exposure to all the highest growth end markets that we want to play — autonomous vehicles, AI, data center, gaming,” Tepper said on June 17. “It’s trading below $145 right now. And it looks really nice in the $135 to $140 range. You might even be able to get it at around $125, and it’s just a no-brainer at that level.”
Of course, Tepper was speaking about NVDA stock before it jumped 6% on June 18.
The point is that Nvidia is the cream of the crop when it comes to chip makers, and yet its stock’s been hit especially hard in 2019.
Currently trading at 21 times forward earnings compared to 30 for AMD stock, Nvidia’s the stock to own in a volatile and uncertain market. That’s why many more analysts like it better than Advanced Micro Devices stock.
And let’s not forget Nvidia’s significant free cash flow, which towers over that of Advanced Micro Devices.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
