In NVDA Vs. AMD, One Stock Has Emerged Clear Winner — But What Can You Expect Next In Chipmakers' AI Race?

Nvidia Corp. NVDA stock has been a runaway winner this year, thanks to the company’s head start in the field of artificial intelligence. But Advanced Micro Devices, Inc. AMD has shown intent to catchup and create its own space in the hot-and-happening technology area.

Against this backdrop, here’s a look at how an NVDA Vs AMD head-to-head stock match-up compares:

NVDA vs. AMD: A Comparative Analysis

Nvidia rebounded from 2022’s weakness and began to rally at the start of the year, and since then, there has been no looking back. By virtue of the breathtaking rally, the chipmaker is now the top-performing S&P 500 stock of the year and the best-performing mega-cap tech stock. It has clocked a gain of over 275% over the past year.

The weakness that was seen in Nvidia in 2022 was primarily due to the economic slackening that began to manifest in the wake of the Fed’s monetary policy tightening that began in March of that year. Mid-year, the company was caught in the crossfires of U.S.-China tensions as the U.S. banned sales of high-performance chips to China, which happens to be one of the major customers of the Santa Clara, California-based company.

All these changed with the coming of age of OpenAI’s ChatGPT, which began to gain popularity with the launch of the GPT-3 version of the chatbot in late November. Software giant Microsoft Corp.‘s MSFT incremental $10 billion investment in OpenAI served to fire additional interest in AI and its applications.

How is Nvidia benefiting from the AI explosion that is beginning to take shape? The GPT-3 version that was used in ChatGPT late last year was powered by 20,000 graphic processors from Nvidia, Bloomberg reported, citing data from SimilarWeb. OpenAI has since then launched GPT-4, the next iteration of its large-language model.

AMD’s shares, meanwhile, have fallen way behind Nvidia since the start of the year as the chipmaker lacked the AI-boost to push its stock higher. This is despite the Lisa Su-led company making a remarkable comeback since its Ryzen line of processors launched in 2017. AMD has been slowly and steadily chipping away into Intel, Inc.’s INTC share of the CPU market since then.

AMD shares have gained over 83% in the past year. The underperformance relative to Nvidia can squarely be blamed on the former being late to the AI party. Realizing the potential, AMD has announced two AI chips, the M1300A and M1300X, which are seen as a potent rival to Nvidia’s H100 high-performance GPU processor. AMD expects to ramp up production and start shipments of its AI chips later this year.

Figure: Comparison of market price trajectory of NVDA and TSLA over a period of one year.

Chart Courtesy of Benzinga

NVDA Or AMD: Which Offers Better Returns?

With Nvidia clearly outperforming AMD over one year, it is a no-brainer that a hypothetical $1,000 invested in the former would have fetched a higher return than a similar sum invested in the latter.

The initial investment of $1,000 would have nearly quadrupled with Nvidia and would be worth $3,751.3 now. AMD would have returned a more modest $1,830.42 on a $1,000 initial investment.

Figure: Comparison of scaled returns delivered by NVDA and AMD over a period of one year.

Chart Courtesy of Benzinga

See Also: Best Artificial Intelligence Stocks

DO NVDA And AMD Often Move Together

Linear regression analysis, which gives the correlation between two variables — in this case, the stock performances of Nvidia and AMD, throws up a coefficient of determination of 0.85. The number suggests a fairly positive correlation between the stocks. This implies the variance in the stock performance is less of a directional move and has more to do with the degree of upside.

Figure: Linear regression analysis of NIO and LI to see if there is a correlation in how the stocks move.

Chart Courtesy of Benzinga

NVDA Or AMD: What About Dividends?

Nvidia was initially incorporated in California in April 1993 and was then reincorporated as a Delaware corporation in April 1998. The company went public on Jan. 22, 1999, and the stock opened for trading at $12 on its debut session.

The chipmaker initiated dividends in late 2012. The company slashed its dividend from $0.16 a share to $0.04 during the COVID-19 pandemic. Since Aug. 2021, it has been paying a stable dividend of $0.04 a share.

The chip maker has split its shares five times in the past, with the latest one implemented in June 2000.

AMD, which went public much earlier, ie, in Sept. 1972, paid a dividend of $0.01 per share only once in April 1995. The company has not been paying dividends since and has affected six stock splits so far.

Figure: Comparison of how much dividends NVDA and AMD have declared over the latest three years..

Chart Courtesy of Benzinga

NVDA Or AMD: Which Offers Better PE?

The forward price-earnings multiple of Nvidia and AMD stand at 26.8 and 25.9, respectively. This compares to the semiconductor industry P/E of 22.8. Despite the gains over the past year, both stocks do not appear overvalued on P/E basis.

The forward P/E is a valuation measure based on the current share price relative to its estimated earnings per share for the next twelve months.

The price-earnings growth ratio, another valuation measure calculated by dividing P/E by the estimated earnings growth, shows Nvidia has an attractive valuation, while AMD is overvalued. Typically, a PEG ratio of less than one suggests the stock is undervalued and is a potential buy.

Chart Courtesy of Benzinga

What Analysts Think Of NVDA And AMD?

The scope of upside potential is better for Nvidia than AMD, as measured by the percentage change between the current price and the analysts’ average price target.

Conclusion

Nvidia is a complete AI package. The company has the “entire AI silicon stack,” namely the advanced GPU, advanced networking embedded in the silicon, and advanced memory embedded, said Baird analyst Ted Mortonson, according to Business Insider.

CNBC Mad Money host and Nvidia fan Jim Cramer said he would not sell Nvidia stock in the wake of rumors of the company’s customers developing AI chips. Rumor has it that Microsoft and its partner OpenAI have been separately working on their own in-house developed AI chips.

Meanwhile, AMD, on its part, could be gearing up for its hour of glory in the AI arena. Following a post-earnings sell-off in early August, Morgan Stanley analyst Joseph Moore said, “We think this [AMD] is
a significant outperformer vs. semis from here.” The analyst sees the next-gen data center GPU MI300 launching in the fourth quarter as having significant potential in an inference market, suddenly looking for much more cost-effective solutions.

AMD’s stock trajectory going forward will hinge on its ability to maintain and grow the server and desktop CPU market vis-a-vis rival Intel and the ramp-up and uptake of the company’s AI chips.

Nvidia settled Monday’s session down 1.07% at $452.73, and AMD edged 0.25% to $106.97, according to Benzinga Pro data.

Image Source – Shutterstock

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