Advanced Micro Devices (NASDAQ:AMD) stock has had an exceptional year despite being outshined by Nvidia (NASDAQ:NVDA).
The GPU market is unevenly split between the two with Nvidia holding a dominant position due to better brand recognition. That said, despite lower revenue, AMD’s excellent graphics cards make it a worthy alternative to Nvidia for investment.
AMD’s CEO Lisa Su is highly regarded, and the stock has surged in 2023. Still, not all experts are bullish on AMD. It’s prudent to consider differing viewpoints and manage your stock position carefully.
Before investing heavily, let’s dive into both stocks and see if AMD is worth investing in at this point in time.
The Bullish Perspective on AMD Stock
If there’s one group that appears to be bullish on AMD stock, it’s analyst. Among the 31 analysts covering this semiconductor name, 24 recommend AMD stock as a buy, while seven have this stock rated as a hold and none suggest this company is a sell.
Overall optimism around this name appears to be tied to the company’s strong earnings in the past, and optimism around how growth tied to the AI super cycle could drive significant demand for AMD’s chips.
Indeed, while Nvidia’s chips are widely considered to be the cream of the crop for AI companies, AMD’s chips also play an important role in the development of this sector.
As overall demand for chips increases, AMD’s market share in other core markets could also surge, leading to impressive earnings over time.
Now, some analysts, including Wells Fargo’s Aaron Rakers suggest that AMD’s Q3 expectations are overly optimistic. He expects $5.4B revenue and 60 cents of earnings per share. That’s lower than consensus estimates of $5.9B and 74 cents.
However, Rakers highlighted potential benefits from EPYC Genoa + Bergamo cycle and MI300 chip launch in Q4 2023.
AMD vs. NVDA
In a notable AI victory, Nvidia collaborated with AMD by using thousands of 64-core AMD processors in a high-performance supercomputer. This exemplifies how rivals sometimes join forces to achieve top-tier performance for specialized tasks.
AMD’s EPYC chip outperformed Intel’s Xeon Scalable processors in certain aspects, leading to successful partnerships.
The AI chip contract competition is fierce between Nvidia and AMD, both showing strong effort and collaboration. Nvidia’s stock surged 214% in 2023, overshadowing AMD’s 72% gains.
This led to higher valuations for Nvidia, trading at 41-times forward earnings and 45-times sales, compared to AMD’s 26-times earnings and 8-times sales metrics.
Nvidia holds the edge with superior ray tracing and DLSS technology. DLSS 3, available only on RTX 40-series cards, outperforms AMD’s FidelityFX Super Resolution. The RTX 4070 Ti, although slower than the RX 7900 XT, gains an advantage with DLSS 3 and improved ray tracing. AMD’s RDNA 3 GPUs still handle ray tracing well, ensuring playable performance.
Both Nvidia and AMD faced declining revenues in the first quarter, with AI sales as a future growth potential. Yet, their current valuations seem high, and other AI investment options might be more attractive.
It’s wise to explore alternatives before considering either NVDA or AMD stock, in my view. But from a valuation perspective, it’s clear that AMD stock is more attractive, at least right now.
What Now
While concerns around AMD’s revenue and Data Center decline are valid, the overall outlook for the chip maker remains positive.
Second-quarter results were encouraging, and AMD’s commitment to next-gen AI chips is clear. History shows betting against AMD often leads to losses.
Thus, I think investors can make a calculated bet on the chip sector by focusing solely on AMD stock right now. When comparing AMD and Nvidia side by side, my preference would probably be AMD right now.
That said, I’m reserving the right to change this opinion, should Nvidia’s future earnings show a monopolization of AI-related chips and a continuation of the absurd growth the company has seen in 2023.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
