Here’s Why You Shouldn’t Choose AMD Stock Over Nvidia

InvestorPlace contributor Louis Navellier and the InvestorPlace Research Staff last month discussed why Navellier’s Portfolio Grader gave Advanced Micro Devices (NASDAQ:AMD) an “A” rating. Does that make AMD stock a buy?

Here's Why You Shouldn't Choose AMD Stock over Nvidia

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I ask this because Navellier’s Portfolio Grader also gives Nvidia (NASDAQ:NVDA) an A. 

If I could only buy one of the two stocks, I would go with Nvidia because of its free cash flow generation. It’s something I discussed most recently on March 26 and have argued for some time. That said, AMD has seriously outperformed Nvidia’s stock for more than five years. If there’s a momentum buy, it’s pretty apparent which is the better play. 

With Navellier giving both stocks an A rating, I wondered if there was anything from his arguments that tips the scale for either company. Why don’t we have a look?

The Attractive Qualities of AMD Stock  

Of all the arguments made by Navellier and the InvestorPlace Research Staff, it is the comments about AMD’s work with Microsoft (NASDAQ:MSFT) that catch my attention. Except for Microsoft’s More Personal Computing segment, which is experiencing weaker Windows and Surface Devices sales as a result of the coronavirus, Microsoft’s business is on a roll.

“Now, there are reports that AMD’s Ryzen 4000-series chips are being used in Microsoft’s newest Surface computers. And even better for AMD and consumers, the 4000-series chips have improved battery life and thermal design that widens the performance gap between AMD and Intel processors,” Navellier and company wrote on March 24.  

“And AMD is continuing to cut into Intel’s market share. A February survey showed that 21.4% of respondents were using AMD processors, up from 19.4% just two months prior.”

Although some of these comments were directed at Intel (NASDAQ:INTC), the more important message is that Microsoft is looking to gain an edge with its hardware. Not only is it using AMD’s Ryzen processors for its Surface devices, but it’s also using AMD’s RDNA 2 GPU for the upcoming release of its Xbox Series X gaming console.

Those are significant wins for AMD, and while the coronavirus will impact its results in the first half of fiscal 2020, the company expects its revenues to grow from $6.7 billion in 2019 to $16 billion in 2024. 

Assuming earnings growth follows along, it’s not hard to see AMD stock hitting $100 in the next 2-3 years, perhaps sooner. 

What About Nvidia?

Navellier, with an assist from the crack InvestorPlace Staff, discussed the company’s most attractive qualities in early March. Navellier mentioned several catalysts for NVDA stock with its GPU processors at the top of the list. 

With the coronavirus keeping many people at home at the moment, gaming has most certainly become even hotter than it already was. Navellier points out that the gaming industry generated approximately $152 billion in 2019. Given 50% of Nvidia’s profits come from gaming with expectations for that percentage to increase over the next few years, it’s hard not to be excited about Nvidia’s stock. 

Furthermore, in Navellier’s comments about AMD, he pointed out that AMD’s stock had gained 285% over the past two years compared to losses of 10% and 2% for Nvidia and Intel, respectively. 

Nvidia’s superior free cash flow generation and balance sheet combined with a little reversion to the mean suggests Nvidia’s turn could be about to come. However, it is his comments about the company’s place in a 5G world that ought to make you think twice before buying AMD and not Nvidia.  

“I’m most excited about Nvidia’s involvement in the deployment of 5G technology. 5G technology will make our “smart” devices faster and smarter. It will make wireless internet connections as fast as being connected to a modem,” Navellier wrote on March 6.

“And, it will make virtual reality technology much more accessible. In turn, this development will make watching sports better and everyday chores, like seeing your doctor more convenient.”

There’s a lot to like about Nvidia.

The Bottom Line on AMD Stock

I’ve been wrong about AMD for going on three years. You’d think I’d wise up. 

However, I’ve stuck by Nvidia the entire time because profits do matter. Financially speaking, if I had to buy one or the other as a foundational piece of my stock portfolio, despite AMD’s gains, I would still go with Nvidia. 

That said, after the coronavirus fades, I’m sure AMD stock will resume its climb to $100. If I could buy both stocks for my core portfolio, I certainly would.  

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.


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