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Artificial intelligence (AI) stocks have turned into legitimate multi-baggers since the public launch of ChatGPT, and experts expect the market to further leap to $2.74 trillion by 2032. It’s safe to say that AI is here to stay.
The two most prominent names in the sector that have defined this rally have been Nvidia (NVDA) and Advanced Micro Devices (AMD). The competing giants have been in a race to win a chip war – providing AI chips for leading companies like ChatGPT developer OpenAI. Although Nvidia is currently dominating, AMD has not been slacking.
So which of these behemoths should investors add to their portfolios?
How Do Their Financials Stack Up?
Both Nvidia and AMD have seen their revenue and earnings compound at impressive rates over the past 10 years. While Nvidia's revenue and earnings clocked CAGRs of 38% and 60%, respectively, the same metrics for AMD have stood at 15% and 43%.
In terms of share price performance, Nvidia has raced ahead of AMD in 2024. While NVDA has rallied 171% on a year-to-date basis, AMD stock is down nearly 15% in the same period.
In their last quarters, both companies reported impressive numbers. However, only Nvidia was able to beat analyst estimates for both revenue and earnings.
Nvidia continued on its spree of reporting record quarterly revenues in Q3 2024 as it came in at $35.1 billion beat estimates of $33.2 billion, and earnings per share of $0.81 beat estimates of $0.75. Net cash from operating activities rose to $17.6 billion compared to $7.3 billion in the year-ago period. Overall, Nvidia exited the quarter with a cash balance of $38.5 billion with no short-term debt on its books.
For AMD, Q3 was marked by a yearly growth in revenue and earnings as well. Its revenue of $6.8 billion beat estimates of $6.7 billion, but its EPS of $0.92 came in matching estimates.
Cash flow from operations also increased to $628 million, up 49.2% from the previous year. AMD closed the quarter with a cash balance of $3.9 billion and no short-term debt on its books.
New Developments and Growth Drivers
Nvidia’s Blackwell platform, announced in March 2024, represents a major advancement in cost and energy efficiency compared to its predecessor, the Hopper architecture. Blackwell is expected to reduce costs for AI model training by up to 25 times while significantly lowering energy consumption. Production has already started, with availability planned for 2025. Nvidia is also looking ahead, with plans to launch Rubin, an even newer generation of infrastructure, in 2025 or 2026. The company’s CUDA platform and InfiniBand networking technology provide additional competitive advantages, alongside its robust software suite, including Nvidia AI and Omniverse. These tools tightly integrate with its hardware, enabling seamless AI development and deployment while ensuring customer retention.
Meanwhile, AMD is making strategic moves to compete with Nvidia, particularly with the recent launches of its Instinct MI325X AI chip and the Ryzen AI PRO 300 Series processors. The MI325X aims to capture a share of the data center GPU market, projected to reach $500 billion by 2028, while the Ryzen AI PRO 300 Series targets the PC market. AMD is also addressing growing demand in the AI accelerator market with an aggressive product roadmap that includes the MI325X in 2024, the MI350 series in 2025, and the MI400 series in 2026, based on its next-generation CDNA architecture. Supply shortages and production delays of Nvidia’s Blackwell GPUs create an opportunity for AMD to gain traction in this space.
In addition to its hardware advancements, AMD’s acquisition of Silo AI strengthens its capabilities in large language model training and positions it to benefit from a new revenue stream in AI solutions. Silo AI’s impressive customer base, which includes Nvidia, highlights the strategic value of this acquisition.
Valuations
Unsurprisingly, neither company is trading at a reasonable valuation thanks to the hype in artificial intelligence.
Nvidia is trading at a forward price-earnings ratio of 48.43x, a forward price-sales ratio of 26.05x, and a forward price-cash-flow ratio of 48.7x. AMD is trading at 100.35x, 8.26x, and 84.03x for those same metrics, respectively.
Analyst Opinions
Analysts have deemed both stocks a “Strong Buy.” While Nvidia's mean target price of $173.71 denotes an upside potential of about 30% from current levels, AMD's mean target price of $188.69 indicates an upside potential of roughly 50% from current levels.
For Nvidia, out of 43 analysts covering the stock, 36 have a “Strong Buy” rating, 3 have a “Moderate Buy” rating and 4 have a “Hold” rating. For AMD, out of 38 analysts covering the stock, 30 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating and 7 have a “Hold” rating.
The Bottom Line on Nvidia vs. AMD
Both companies are well-positioned to capitalize on the AI revolution. Nvidia’s focus on full-stack solutions and next-generation platforms like Blackwell and Rubin reinforces its leadership in high-performance GPUs and AI computing. At the same time, AMD’s aggressive product roadmap, strategic acquisitions, and software advancements make it a formidable competitor, particularly in the AI accelerator and data center markets.
However, due to its relatively better financial position and full-stack capabilities, the prospects for Nvidia seem brighter at the moment than AMD.
