Both Advanced Micro Devices (NASDAQ:AMD) stock and Nvidia (NASDAQ:NVDA) have each hit their respective highs in the past year with AMD being up 115% and NVDA 236% over the past year. This has been to due the massive innovation taking place over the past year with the growth of AI.
However, AMD stock does not look like it will break any more price barriers soon. NVDA will only continue to trend upward.
A Closer Look at AMD Stock
Optimism for AI is a major catalyst that’s pumping up the stock. However, this is an area where AMD is the laggard compared to Nvidia.
The key to winning the AI war is not the sheer power of processing power, but the software that will best optimize the hardware. On this front, Nvidia has a massive advantage. It has more software engineers than hardware engineers at its company, and its recent software update made its AI functionality 5x faster.
AMD was caught misleading investors on how it had the fastest GPU when it ran Nvidia GPUs on un-optimized software. Therefore, it’s safe to say that Nvidia has the advantage in AI right now. In addition, data supports the fact that it is the undisputed market leader, seeing as how it holds 92% of the market share.
AMD’s CPU market share is weak
In the past few years, AMD stock made investors optimistic in its penetration in the CPU market. However, we must remember that it’s coming at the expense of Intel, a $183 billion company whose name is synonymous with CPUs.
Even though AMD has overtaken market share, Intel continues to compete fiercely, and observers often describe the two companies as neck to neck.
One company creates a better chip at a cheaper price, and the other soon matches it. We see this as operating margins have continued to decline. In FY 2023 it was only 1.77%, compared to 5.36% the previous year.
For context, its operating margins in the prior years have always stayed above the 10% threshold. In 2021, it made the most progress when it got almost 40% of the CPU market share, since then market share hasn’t grown and has instead fallen to around 36%.
Nvidia’s Dominance
Nvidia beats AMD all around when it comes to profitability and growth projection.
Analysts anticipate a remarkable sales increase of 118.4% to $59 billion in fiscal 2024 and a subsequent 56.5% growth to $92.3 billion in fiscal 2025. NVDA dominates the AI chip market with an 80% market share, expected to generate $54 billion in revenue in the next year. It controls 87% of the GPU market designating AMD as a drop in the bucket.
Valuation
In comparison to NVDA, investors significantly overvalue AMD stock. The business remains vulnerable to environmental shifts, showing a lack of resilience despite a decade of growth.
AMD’s stock surge is largely attributed to AI hype and NVDA’s performance. NVDA has a unique position in the AI revolution, benefiting from its unmatched ecosystem. Customers with high switching costs lead to sustained high profitability. Nvidia Corporation’s current valuation suggests a promising opportunity, with a potential 20% upside.
Ditch AMD for NVDA’s guaranteed returns now and years into the future!
On the date of publication, Michael Que 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.
The researchers contributing to this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
