Why AMD Stock Is a Better Long-Term Buy Than NVDA


  • New product launches in servers, GPUs and laptops strengthen AMD’s (AMD) position in key growth markets versus Nvidia (NVDA).
  • Execution risks related to inventory corrections and gaming console demand create near-term headwinds for AMD.
  • AMD has a more balanced risk-reward profile than the overvalued Nvidia in the speculative AI space.
AMD stock - Why AMD Stock Is a Better Long-Term Buy Than NVDA

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While both Nvidia (NASDAQ:NVDA) and AMD (NASDAQ:AMD) have their own investor appeal, depending on what specific investors are looking for, NVDA stock has clearly outperformed recent months. That’s mostly thanks to broad-based AI hype, which has cooled down significantly in recent weeks. Thus, I expect NVDA stock to plateau in the short- to medium-term as this hype dies down.

Indeed, this AI excitement has benefited NVDA much more than AMD. That’s because Nvidia makes top-of-the-line AI chips, while AMD has just started dipping its toes in those waters. So, while AMD may not look as flashy to some AI-focused investors, I believe it’s worth considering right now if you want to generate massive gains over the long-term.

AMD Poised to Catch Up to Nvidia

In my opinion, the answer to whether AMD is a better investment than Nvidia right now is yes. That’s because NVDA stock is priced for perfection, needing to meet highly-bullish long-term expectations in the speculative AI market.

Meanwhile, AMD is in no rush to do the same. It’s already executing very well with its fledgling AI chips. Rumors are also swirling that the company has partnered with Microsoft (NASDAQ:MSFT) to secretly dethrone Nvidia’s dominance over AI chips.

Regardless, comparing both companies shows a clear disconnect in their valuations. Even if Nvidia generated its expected 2033 revenue and earnings today, it would still trade well above 5.3-times sales and over 10-times earnings.

AMD, on the other hand, drops below that valuation with 2026 revenue. It also comes close to 12-times forward earnings when looking at projected 2027 numbers. I believe that even with AMD’s recent soft guidance, it’s poised to outperform Nvidia. That’s simply because Wall Street underestimates this underdog, while Nvidia carries a sky-high valuation requiring perfect execution for years.

It will be very tough for Nvidia to maintain performance in this speculative AI environment. Meanwhile, I think AMD can innovate and catch up using Nvidia as a benchmark, just as it has done with Intel (NASDAQ:INTC) in the processors space.

Of course, both stocks trade in high correlation to each other, and AI as a whole is a speculative trend right now. As more semiconductor firms pour money into chip development, supply may increase until these chip makers can no longer reap massive margins from this boom. That would hurt both AMD and Nvidia, and any other player in this sector, if that’s the case.

So, while I believe AMD can outperform Nvidia over the medium-term, the short answer is I don’t think either stock offers a compelling buy at current levels. At nearly $110 per share, AMD stock remains a “hold” in my eyes.

AMD’s Product Roadmap is Promising

Looking closer at AMD’s product roadmap shows why it has more room to grow relative to Nvidia. Its new EPYC server CPUs based on the Genoa architecture delivered over 50% sequential revenue growth last quarter. Initial shipments of its Instinct MI300 GPU accelerators also commenced for high-performance computing applications.

As AMD ramps up production of these chips, I expect the company’s data center segment revenue to exceed $2 billion in the same period next year. That would represent massive growth versus this quarter’s sales of around $1.6 billion. AMD’s next-gen EPYC server CPU, codenamed Turin, which is scheduled to launch in 2024, should accelerate this data center momentum.

On the client side, over 50 new laptops powered by AMD’s latest Ryzen 7000 chips hit the market last quarter. AMD is also working closely with Microsoft to take advantage of its on-chip AI engine in the next Windows release. This collaboration should enable significant performance and user experience advances.

All things considered, AMD’s product pipeline appears very promising versus Nvidia’s. Its coming launches, combined with partnerships like the rumored AMD-Microsoft alliance, can potentially disrupt Nvidia’s lead in key areas like data center AI acceleration.

Execution Risks Can’t Be Ignored

However, it’s worth remembering that AMD stock is not without its fair share of risks. The data center market remains challenging, with demand mixed among cloud and enterprise customers. Any further economic deterioration may dampen data center spending.

Additionally, AMD’s embedded segment faces inventory corrections, with revenue expected to decline over the next few quarters. Gaming revenue is also forecasted to be lower due to this sector being in the late stage of its cycle.

So, while AMD’s new product ramp presents big opportunities, it also faces strong near-term headwinds. Effective execution and the ability for AMD’s management team to navigate these headwinds will be key to the thesis AMD can outperform Nvidia.

AMD’s Growth Story More Convincing Than NVDA’s

In summary, my take is that AMD’s growth story is more convincing than Nvidia’s. AMD is an underdog with much more room for upside than the overvalued NVDA.

Naturally, NVDA won’t cede its AI chip lead easily. But AMD is innovative and motivated enough to catch up over the long run. Of course, both companies face uncertainties in the speculative AI space. Still, AMD seems better positioned for long-term gains.

Therefore, while I wouldn’t rush to buy either stock today, AMD appears to be the better choice for long-term investors. In my view, it’s only a matter of time before this overlooked chipmaker surpasses the AI darling Nvidia to become a dominant force.

On the date of publication, Omor Ibne Ehsan 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.

Omor Ibne Ehsan is a writer at InvestorPlace. He is a self-taught investor with a focus on growth and cyclical stocks that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as cryptocurrencies and penny stocks. You can follow him on LinkedIn.

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