In the fast-paced world of tech stocks, where hype and innovation drive investments, two giants, Nvidia (NVDA) and AMD (AMD), have been vying for the attention of investors.
Both companies are well-known for their semiconductor products, but recently, the balance seems to be shifting in favor of AMD.
In this article, we’ll explore why AMD may be the better investment choice in the long term, potentially surpassing Nvidia in the speculative AI market.
Nvidia’s AI Hype and Cooling Enthusiasm
Nvidia has been riding the wave of AI excitement, thanks to its top-of-the-line AI chips. However, as with any hype, the enthusiasm eventually cools down.
Recent weeks have seen a decline in the AI frenzy, and this is likely to impact Nvidia’s stock performance in the short to medium term.
While Nvidia has thrived on the AI craze, it might now need to live up to extremely bullish long-term expectations in this speculative market.
AMD: The Underdog with Potential
AMD’s approach to the AI market is different from Nvidia’s. While the latter is priced for perfection and must meet high long-term expectations, AMD is taking a more measured approach.
It has been making steady progress with its AI chips and has even been rumored to have a strategic partnership with Microsoft aimed at challenging Nvidia’s dominance in the AI chip space.
Comparing the valuations of both companies reveals a significant disparity. Even if Nvidia were to achieve its expected 2033 revenue and earnings today, it would still trade at more than 5.3 times sales and over 10 times earnings.
In contrast, AMD’s valuation drops significantly when projecting 2026 revenue and approaches 12 times forward earnings for 2027.
This valuation disconnect suggests that AMD might outperform Nvidia, given Wall Street’s underestimation of the underdog, while Nvidia faces the challenge of maintaining its high valuation.
The Uncertain Landscape of AI
Both Nvidia and AMD are highly correlated in their stock performance, and the AI market itself is speculative.
The influx of semiconductor companies into chip development may eventually lead to increased supply, reducing the margins for both AMD and Nvidia.
The speculative nature of the AI market implies that caution is necessary when considering investments in these stocks.
AMD’s Promising Product Roadmap
One reason to be optimistic about AMD’s long-term potential is its product roadmap. Its EPYC server CPUs based on the Genoa architecture have shown impressive sequential revenue growth.
Initial shipments of its Instinct MI300 GPU accelerators for high-performance computing applications are underway.
As AMD ramps up production, it is expected that the company’s data center segment revenue will exceed $2 billion in the near future.
On the client side, AMD’s latest Ryzen 7000 chips have been adopted by over 50 new laptops in the market.
AMD is also collaborating closely with Microsoft to leverage its on-chip AI engine in the next Windows release, which promises significant performance and user experience enhancements. T
his product pipeline, combined with potential partnerships like the rumored AMD-Microsoft alliance, could disrupt Nvidia’s leadership in key areas like data center AI acceleration.
Risks to Consider
It’s important to acknowledge that AMD faces its own set of risks. The data center market is challenging, with mixed demand among cloud and enterprise customers, and further economic deterioration could dampen data center spending.
AMD’s embedded segment is dealing with inventory corrections, and gaming revenue is expected to be lower due to the late stage of the gaming cycle.
Effective execution and AMD’s management team’s ability to navigate these challenges will be crucial for the company to outperform Nvidia.
Conclusion: AMD’s Growth Story is Convincing
In conclusion, AMD’s growth story appears more convincing than Nvidia’s. While Nvidia is highly valued and might struggle to maintain its performance in the speculative AI environment, AMD has room to grow and innovate.
Although both companies face uncertainties in the AI space, AMD seems better positioned for long-term gains. While it may not be a compelling buy at its current price, AMD appears to be the better choice for long-term investors.
It’s only a matter of time before this underestimated chipmaker makes significant strides and becomes a dominant force in the AI race.