Which Chip Stock Should You Invest In: Nvidia vs. AMD

In this evaluation, we compare two chip stocks, Nvidia and Advanced Micro Devices (AMD), to determine which one is a better investment option. Nvidia focuses on the gaming, professional visualization, data center, and automotive markets, while AMD targets the data center, embedded, gaming, and PC markets.

Nvidia has seen significant success this year, with its stock up over 200%. In contrast, AMD has only seen a 64% increase in its stock. Due to its lack of profitability, we will compare AMD’s price-to-sales (P/S) ratio to that of Nvidia to gauge their valuations against each other and their industry.

The U.S. semiconductor industry is currently trading at a P/S of 7, higher than its three-year average of 5.8. Nvidia, on the other hand, has a P/S ratio of 34.4, which indicates that it is overvalued in comparison to both its industry and AMD. Despite this, there are various factors to consider.

Insiders at Nvidia have been selling their shares, indicating a bearish sentiment. However, an informative sell transaction occurred recently, suggesting that insiders may not expect the stock to rise further. On the positive side, Nvidia’s revenue more than doubled in the most recent quarter, and its data center revenue rose 171% year-over-year.

There was also speculation about Nvidia’s data center revenue, with allegations that it was inflated by CoreWeave, a GPU cloud vendor. However, it was determined that the reported inventory of Nvidia chips had not been deployed yet and did not contribute to the company’s second-quarter revenues.

AMD, on the other hand, is more reasonably valued with a P/S ratio of 7.8, closer to its five-year mean of 8. The company has been generating robust growth, especially in its AI engagements, and plans to launch its first AI accelerator in the fourth quarter. While it may be playing catch-up to Nvidia in the AI market, its long-term growth track record and upcoming products make it an attractive investment.

In conclusion, Nvidia’s valuation may be a concern, but its strong revenue growth offsets some of that worry. AMD, on the other hand, presents a promising long-term investment opportunity. Ultimately, the decision on which chip stock to invest in depends on individual risk tolerance and investment goals.

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