NVIDIA Corporation (NVDA) and Advanced Micro Devices, Inc. (AMD) are dominating the global semiconductor and wireless chip industry. With the increasing use of Artificial Intelligence (AI) in almost all domains, both NVDA and AMD have been witnessing a significant rise in their revenue growth.
Both stocks have generated significant returns over the past five years. While NVDA returned 1,670.6% over this period, AMD gained 3,992%. In terms of year-to-date performance, NVDA is a clear winner with 128.8% returns versus AMD’s 78.5%.
But which of these stocks is a better pick now? Let’s find out.
Latest Movements
Earlier this month, Hyundai Motor Group selected NVDA’s Drive Infotainment and AI platform for all future Hyundai, Kia, and Genesis models which will come standard with the system, starting in 2022. Hyundai has been working with NVDA since 2015 and is collaborating on an advanced digital cockpit for release in late 2021.
Texas A&M University has accelerated its research on AI and data science with the launch of the Grace Supercomputer which is powered by NVIDIA A100 Tensor Core GPUs. As NVIDIA GPUs reach 10 years on Amazon Web Service (AWS), the cloud computing arm of Amazon.com, Inc. (AMZN), NVIDIA A100 was launched on AWS on November 2nd.
NVDA’s GPUs won all tests of AI inference in data centers and edge computing systems in the latest round of MLPerf benchmarks. The A100 GPU outperformed CPUs by up to 237 times in data center inference. Adobe Photoshop has improved its smart portrait neural filter using NVDA’s RTX GPUs.
AMD unveiled the Ryzen Embedded V2000 Series processor on November 10th. It not only provides a new class of performance with 7nm technology but also has advanced security features. The company has also been expanding in the gaming segment. Last month, AMD released the much-anticipated Radeon RX 6000 Series graphics cards, which offer high-performance, last-level data cache.
AMD, to establish itself as the industry’s high-performance computing leader, has agreed to acquire Xilinx, Inc. (XLNX) for $35 billion. Microsoft Azure Virtual Machines started offering AMD’s EPYC processors to Azure data explorer customers. AMD launched the Ryzen 5000 Series Desktop Processor lineup powered by the new “Zen 3” architecture on October 8th.
Recent Financial Results
NVDA’s revenue surged 49.9% year-over-year to $3.87 billion for the second quarter ended July 2020, primarily driven by its acquisition of Mellanox Technologies, Ltd. Mellanox contributed roughly 14% of total company revenue.
NVDA reported a record data center revenue of $1.75 billion, up167.5% year-over-year. Revenue from the gaming sector increased by 26% year-over-year to $1.65 billion, owing to increased demand during the pandemic. Non-GAAP Net income increased 79.3% year-over-year to $1.37 billion. Non-GAAP EPS increased 75.8% year-over-year to $2.18.
AMD’s revenue increased 55.5% year-over-year to $2.80 billion for the third quarter ended September 2020. It was primarily driven by higher revenue from Enterprise, Embedded, and Semi-Custom and Computing and Graphics segments. While AMD’s revenue from the computing and graphics segment increased 30.6% year-over-year to $1.67 billion, the revenue from Enterprise, Embedded, and Semi-Custom segment revenue increased 116% year-over-year to $1.13 billion. Non-GAAP Net income increased 128.8% year-over-year to $501 million. Non-GAAP EPS increased 127.8% year-over-year to $0.41.
Past and Expected Financial Performance
NVDA’s revenue grew at a CAGR of 16.1% over the past 3 years. Analysts expect the company’s revenue to increase 46.4% for the quarter ended October 2020, 44.6% in 2021, and 18.8% in 2022. NVDA’s EPS is expected to grow 43.8% for the quarter ended October, 57.3% in 2021, and 21.8% in 2022. Moreover, its EPS is expected to grow at a rate of 17.4% per annum over the next five years.
On the other hand, AMD’s revenue grew at a CAGR of 19.9% over the past 3 years. AMD’s revenue is expected to increase 41.6% for the quarter ending December, 41.6% in the current year, and 25.2% next year. The company’s EPS is expected to grow 43.8% for the quarter ending December, 92.2% this year, and 49.6% next year. Moreover, AMD’s EPS is expected to grow at a rate of 38.2% per annum over the next five years.
Thus, AMD has an edge over NVDA here.
Profitability
NVDA’s trailing-12-month revenue is 1.5 times what AMD generates. Moreover, NVDA is more profitable with a gross margin of 64.1% versus AMD’s 44.5%.
However, AMD’s ROE of 29.1% compares favorably with NVDA’s 27.9%.
Valuation
In terms of forward P/E, AMD is currently trading at 66.18x, 11.3% more expensive than NVDA, which is currently trading at 59.46x. However, AMD is less expensive in terms of trailing-12-month P/S (11.04x versus 25.23x). NVDA’s forward PEG of 2.81x is 38.4% higher than AMD’s 2.03x.
In terms of trailing-12-month price/cash flow, AMD’s 102.64x is 72.3% higher than NVDA’s 59.58x.
POWR Ratings
Both NVDA and AMD are rated “Buy” in our proprietary POWR Ratings system. Here’s how the four components of overall POWR Rating are graded for NVDA and AMD:
NVDA has an “A” for Trade Grade and Industry Rank, a “B” for Buy & Hold Grade, and a “C” for Peer Grade. In the 86-stock Semiconductor & Wireless Chip industry, it is ranked #34.
AMD has an “A” for Industry Rank, a “B” for Trade Grade and Buy & Hold Grade, and a “D” for Peer Grade. It is ranked #35 in the same industry.
The Winner
Both NVDA and AMD are good investment bets considering their market dominance and continued expansion. Both have generated huge revenues especially from the gaming sector with people spending more time at home. However, AMD appears to be better based on its higher earnings growth potential and its continued strategic acquisitions.
Want More Great Investing Ideas?
9 “MUST OWN” Growth Stocks for 2021
Is the Bull Market Back on Track?
5 WINNING Stocks Chart Patterns
AMD shares were trading at $81.43 per share on Friday afternoon, down $0.41 (-0.50%). Year-to-date, AMD has gained 77.56%, versus a 12.86% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...
More Resources for the Stocks in this Article
Ticker | POWR Rating | Industry Rank | Rank in Industry |
AMD | Get Rating | Get Rating | Get Rating |
NVDA | Get Rating | Get Rating | Get Rating |