When it comes to semiconductor stocks, it seems like all anyone can talk about is Nvidia. With the launch of the company’s new Blackwell graphic processing unit (GPU) architecture underway, I’m not particularly surprised that Wall Street remains largely bullish on Nvidia.
But in the background, Advanced Micro Devices (AMD 1.10%) is quietly gaining some ground on Nvidia in GPUs — the high-powered chips used in many artificial intelligence (AI) applications — despite the incumbent’s dominating presence. Below, I’m going to analyze the full picture at AMD and make the case for why I think the stock is a better buy than Nvidia during the next 10 years.
Here is what everyone is missing about AMD
The table below breaks down revenue and gross profit growth figures for both AMD and Nvidia during the third quarter.
| Company | Revenue Growth (% Year Over Year) | Gross Profit Growth (% Year Over Year) |
|---|---|---|
| AMD | 18% | 24% |
| Nvidia | 94% | 95% |
Data source: AMD and Nvidia investor relations.
Not only is Nvidia a much larger business than AMD, but its sales and profit margins are growing at a much faster pace. Although this may imply that AMD is far behind its rival, I see the growth figures above as a bit of an illusion.
If you look at the segmented results in the chart below, it becomes clear that AMD’s data center business is thriving. Unfortunately, the company’s gaming and embedded segments are declining across sales and gross profit — thereby dragging down the company’s overall results.
Image source: AMD.
What’s even more encouraging is that AMD’s data center revenue is now growing at nearly the same rate as Nvidia’s. In other words, growth from Nvidia’s data center GPU operation is decelerating at the same time AMD’s is beginning to show signs of scaling.
When in doubt, zoom out
According to data compiled by Jon Peddie Research, Nvidia controls a staggering 90% of the AI GPU market. Coming in at a very distant second is AMD, which boasts an estimated 10% market share.
Similar to the growth figures I analyzed above, I see Nvidia’s tight grip on the GPU market as somewhat misleading. For much of the past two years, Nvidia did not have any competition in the data center GPU sector. This first-mover advantage played a huge role in the company’s ability to grab significant market share.
However, in December 2023, AMD introduced its MI300 series of AI accelerators in an effort to start competing more directly with Nvidia’s GPUs. In just one year, AMD has been able to scale its own data center GPU operation and acquire just enough incremental market share to make a dent in Nvidia’s growth.
Considering AMD already has a line of successor GPU architectures scheduled to release between this year and 2026, I think the company is well on its way to becoming a challenger to Nvidia.
Image source: Getty Images.
AMD’s valuation is too good to pass up
To me, an investment in AMD shouldn’t revolve around whether you think the company will surpass Nvidia or become a larger player in the GPU realm. Rather, by taking a hard look at the trends explored throughout this article, I think there is a valid case to be made that AMD is in the early stages of exponential growth whereas Nvidia’s trajectory during the next decade could slow.
Nevertheless, the market appears to be discounting this narrative entirely. As I write this, AMD is trading at a forward price-to-earnings (P/E) multiple of 23 — its lowest level in a year.
AMD PE Ratio (Forward) data by YCharts
In my eyes, AMD’s data center business will eventually reach a point at which its accelerating growth takes over and washes out any sluggish activity in other non-core segments such as gaming. At the same time, wider adoption of AMD’s accelerators should help the company continue acquiring incremental market share in the GPU landscape.
Should this play out, the narrative surrounding AMD could quickly change and the shares could begin to witness some revival as investors flock toward a new growth opportunity beyond Nvidia. I think now is a lucrative time to take advantage of the current price action and buy the dip in AMD stock.
Adam Spatacco has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.
