AMD's AI Ambitions Questioned Amid Surging Stock, While Nvidia Remains AI's Golden Standard

Advanced Micro Devices Inc AMD has closely followed Nvidia Corp’s NVDA rapid rise, driven by the excitement surrounding artificial intelligence (AI). 

However, the enthusiasm for AMD’s potential in the AI market might be overestimated, casting doubt on its recent stock gains. 

Wall Street projects AMD to grow slower than Nvidia, whose chips remain the preferred choice for AI applications. 

Additionally, AMD’s stock appears more costly, leading some investors like Thomas Hayes of Great Hill Capital to express concerns over the company’s valuation in the short term, particularly given its declining free cash flow and expanding multiples, Bloomberg reports.

Also Read: Intel and AMD Clash Over Huawei Chip Sales, Highlighting US Sanctions and Market Dynamics

Despite these challenges, AMD’s stock has surged 116% since late October, compared to Nvidia’s 128% increase, against a general market fascination with AI narratives. 

AMD’s shares are currently trading at 51 times estimated earnings, positioning it as one of the most expensive stocks in the Philadelphia Stock Exchange Semiconductor Index. 

In contrast, Nvidia trades at a more modest multiple of 37, highlighting a difference in valuation.

Analyst expectations for AMD have been diminishing, with net earnings estimates for 2024 dropping 16% over the last six months, while revenue expectations have also declined.

Recently, U.S. officials have restricted AMD from selling a mighty AI chip in the Chinese market. AMD already showcased the MI300 chip series targeting Nvidia, with MI309 tailored for China.

On the other hand, estimates for Nvidia continue to soar, fueled by exceptional performance forecasts, with the company’s revenue anticipated to jump 80% this fiscal year. It is a fund manager’s favorite stock as they see adequate room for growth.

Wall Street identifies Nvidia as the leading near-term winner in AI, citing its AI momentum into 2024 and 2025 with the GH200, B100, and B200, projecting Data Center revenues of approximately $89 billion in 2024 with potential for further growth. 

Investors can gain exposure to Nvidia via Impact Shares Trust I Impact Shares NAACP Minority Empowerment ETF NACP and Return Stacked Bonds & Managed Futures ETF Grizzle Growth ETF DARP.

Price Actions: NVDA shares traded lower by 3.11% at $890.60 on the last check Wednesday. AMD shares traded lower by 4.38% at $193.57.

Also Read: Nvidia, AMD, and Broadcom Poised for AI Boom, Mizuho Analyst Says

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Photo via Shutterstock