AMD vs. Nvidia: Which Is a Better Chip Stock?

August 30, 2021

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AMD and Nvidia are both poised to profit from the ongoing semiconductor shortage. But which chip stock is a better buy for your portfolio?

This year, a shortage of semiconductor chips has led to skyrocketing demand for the products that both American Micro Devices (AMD) and Nvidia (NVDA) make. In fact, since January 2020, the shares of both companies have risen by hundreds of percent.  

Semiconductor chips are used in everything from cellphones and video game consoles to toothbrushes and automobiles. If it’s electronic, it needs a computer chip. 

Chips are currently in short supply due to a myriad of reasons. For one thing, Covid restrictions caused an unprecedented demand for laptops and other personal electronics. Add to that an ongoing trade war with China, a factory fire, and weather-related disruptions.

Analysts are expecting the supply-and-demand imbalance to continue at least through the rest of the year. That should mean even more profits for AMD and Nvidia.

But if you had to choose one, which stock would be a better pick for your portfolio? Let’s dive in and compare AMD vs. Nvidia.

At a Glance: AMD vs. Nvidia

American Micro Devices Inc. (AMD)Nvidia Corp.
FocusSemiconductor chips, flash drives, graphics processors, and other consumer electronics componentsSemiconductor chips, graphics processors, and application programming interfaces
TickerNSDQ: AMDNSDQ: NVDA
Market Cap (8/12/21)$130.99 billion$541.48 billion
CEOLisa SuJensen Huang
Founded In19691993
HeadquartersSanta Clara, CASanta Clara, CA

What’s AMD?

American Micro Devices, also known as AMD, has been making computer chips since before Neil Armstrong landed on the moon. The company was founded in May 1969 by former executives from Fairchild Semiconductor. Its history is linked with that of Silicon Valley, where the company has held its headquarters since the start.

Even though AMD is an OG in the computer chip industry, it’s long been considered an underdog. That’s especially been the case when compared to Intel (INTC), Silicon Valley’s largest chip maker.

However, AMD has been on an innovative streak during the last 10 years. For example, in 2016, it released the super-speedy Ryzen microprocessor. Many computer nerds consider this chip superior to Intel’s latest products.

AMD’s market share is growing, too. In 2020, the company saw a 70% increase in revenue. Intel’s revenue, on the other hand, grew only 8%.

What’s Nvidia?

Nvidia is another Silicon Valley chipmaker. It was founded in 1993. But it became a household name in 2001 when the first-generation Microsoft (MSFT) Xbox used its chips.

Today, gamers still favor Nvidia’s products. The company even has its own acclaimed HD gaming and streaming device, the Shield TV. 

In the last 20 years, Nvidia has quickly become renowned for its high-end graphics processing units (GPUs). But it has also spent a lot of money on high-tech research and development (R&D). Last year, the company spent more than 20% of its sales on R&D.

Nvidia is particularly interested in artificial intelligence (AI) development. And the company has started designing and manufacturing microchips geared toward machine learning. In 2020, the company’s AI-related sales were more than $2.8 billion.

AMD vs. Nvidia: Products

AMD

AMD’s recent focus has been on affordable chips for laptops and PCs. Along with GPUs, it offers a range of central processing units (CPUs), as well as other personal computing and business chip solutions. 

But AMD is looking to expand into more heavy-duty products. The company is currently acquiring Xilinx (XLNX), a firm that manufactures field programmable gate arrays, or FPGAs. These chips are used in industrial and aerospace equipment, as well as medical devices, cybersecurity systems, and consumer electronics.

Clearly, AMD wants to give Intel a run for its money

AMD is purchasing Xilinx for about $36 billion.

The company also manufactures hardware used in data centers, as well as cloud computing services. Earlier this summer, Alphabet (GOOGL) announced that it would offer Google Cloud services based on AMD chips.

AMD’s other customers include Microsoft, Hewlett Packard Enterprise (HPE), Dell (DELL), and Lenovo (LNVGY).

Nvidia

Nvidia is a go-to not only for gamers but also for data centers. Its powerful and fast GPUs can crunch a lot of data in a short amount of time.

The company is looking to expand further into this area with the intended purchase of Arm Holdings from SoftBank (SFTBY). The deal is worth $40 million but will give Nvidia a competitive edge against AMD and even Intel.

Arm designs CPUs and other chips, along with software development tools and system-on-a-chip (SoC) infrastructure and software. Nvidia plans to invest in an Arm-powered

AI supercomputer and nurture Arm’s partnerships in the healthcare, robotics, and AI vehicle industries.

Nvidia’s many customers include Alphabet, Apple (APPL), Microsoft, and Motorola (MSI).

The Winner

Nvidia. AMD has built a strong portfolio of products during its 52-year history. The company has had to innovate to better compete with Intel, aka “Chipzilla.”

But Nvidia is positioning itself to become a leader in the future of technology. Its R&D into AI and its purchase of Arm are truly exciting developments. 

Of course, it’s possible the Arm purchase (as well as AMD’s Xilinx deal) could crumble. Regulators haven’t approved either acquisition yet — although both companies are optimistic.

In the meantime, Nvidia’s current products are fan favorites. As a result, we’ll see its market share continue to expand, especially in the gaming industry.

AMD vs. Nvidia: Earnings and Profitability

AMD

During the second quarter of the current fiscal year, AMD nearly doubled its revenue on a year-over-year basis. And its adjusted earnings skyrocket 250%, to 63 cents.

This performance was crazy-good. And now the company has received its full-year revenue estimate from 37% to 60% growth. 

Over the long run, analysts are calling for a 30%-plus annual growth rate. But that percentage could be higher for AMD.

Nvidia

On the other hand, Nvidia beat Wall Street expectations in the second quarter. The company announced record results, including $6.51 billion in revenue and adjusted earnings of $1.04 per share.

For the current (third) quarter, analysts expect Nvidia’s revenue to increase, to $6.8 billion.

Nvidia is another growth story. Its revenue skyrocketed 68% on an annualized basis during the second quarter. And its gaming segment grew 85%. This infographic tells the story:

The Winner

Again, Nvidia. That 68% growth rate was pretty astounding.

But it’s a close call. AMD is also primed for continued revenue growth. 

I think it comes down to the long-term potential here. Nvidia will stand to profit as it transforms from a gaming chip maker to an AI powerhouse. And it should take its investors along for the ride.

AMD vs. Nvidia: Which Is a Better Buy?

Both stocks are great. There’s little not to like about either company. 

As I write (August 24), AMD’s stock is cheaper, below $108 per share. On the other hand, Nvidia is much more expensive, just below $220 per share.

It’s tempting to purchase both stocks. But Nvidia is a better investment for the long term for all of the above reasons. However, the smart money will wait for any dips in price before grabbing shares of Silicon Valley’s future king.



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