Could AMD Be the Next Nvidia?

nvidia‘S (NVDA -0.12%) The stock has nearly quadrupled in the past 12 months as it ramps up orders for advanced data center graphics processing units (GPUs) that help customers perform complex artificial intelligence (AI) tasks. As the popularity of generative AI platforms like OpenAI’s ChatGPT soars, market demand for new GPUs is exceeding available supply, and analysts expect the chipmaker’s revenue to surge 81% in fiscal 2025 (ending January 2025). do.

Nvidia’s stock may still have plenty of room to run as the AI ​​market expands, but at 37x forward earnings, the stock is getting a little expensive. NVIDIA has already become the world’s third largest company with a market capitalization of $2.3 trillion. microsoft and apologize. Therefore, it may be difficult to replicate the multibagger growth of the past few years.

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That’s why many growth-oriented investors are already looking for the “next Nvidia.” Could the top candidate for that title actually be a rival? advanced micro devices (AMD 2.14%)What competes with Nvidia in the gaming and data center GPU market?

Differences between AMD and Nvidia

AMD is a much smaller company than Nvidia. It has a market capitalization of just $315 billion, and analysts expect it to generate less than a quarter of Nvidia’s annual revenue this fiscal year. According to JPR, AMD controlled only 19% of the external GPU market in the fourth quarter of 2023, while Nvidia held an 80% share. intel We now own the remaining 1% stake.

AMD generally sells cheaper GPUs than Nvidia, but the latter has also released low-end chips in recent years to limit the former’s gains in the low-end market. Nvidia also established a strong position in the data center GPU market ahead of AMD.

Unlike Nvidia, AMD competes with Intel in x86 CPUs for PCs and servers. According to PassMark Software, AMD had a 35.5% share of that market in the first quarter of 2024, while Intel had a 63.4% share.

Over the past eight years, AMD has increased its x86 CPU market share by continuing to sell cheaper, denser, and more power-efficient chips than Intel. This was achieved by outsourcing production. Taiwan Semiconductor Manufacturing That’s because Intel has had trouble upgrading its own internal foundry.

AMD also sells custom APUs (integrating GPUs and CPUs) for game consoles and laptop computers, as well as programmable chips for a variety of markets. Nvidia sells Arm-based Tegra CPUs for set-top boxes. nintendo It transforms and delivers data center networking products through its Mellanox subsidiaries.

Simply put, AMD is a more broadly diversified chipmaker that generates 29% of its revenue from the data center market, 27% from the gaming market, 23% from embedded chips (including programmable chips), and the remaining 21% from client computing. In a similar fiscal year, 2024, Nvidia generated a whopping 78% of its revenue from data center GPUs, with the remaining 22% coming from other types of chips.

AMD is growing more slowly than Nvidia.

AMD’s heavy exposure to the PC market, which suffered a major slowdown after the pandemic passed, has suppressed its growth over the past year. 2023 revenue and adjusted earnings per share (EPS) decreased 4% and 24%, respectively. By comparison, Nvidia’s revenue and adjusted EPS surged 126% and 288%, respectively, in fiscal 2024. This growth was driven entirely by robust sales of data center GPUs, which offset slowing growth in PC-oriented chips.

AMD has been expanding into the data center market with its AI-oriented Instinct GPUs, and CEO Lisa Su recently said that these deployments are “accelerating” and are on track to be the “fastest revenue growth of any product” in its entire history.

AMD plans to carve out its own niche in the data center market with affordable GPUs and bundle them with Epyc data center CPUs and programmable chips. It probably won’t catch up to Nvidia in the AI ​​race. However, many major companies, including Microsoft, meta platform, trust, delland hewlett packard enterprise — We’ve already been installing AMD chips as a cost-effective alternative to Nvidia chips.

Analysts expect AMD’s revenue and adjusted EPS to grow 14% and 37%, respectively, in 2024 as the PC market stabilizes and its data center business expands. By 2025, revenue and adjusted EPS are expected to grow by 26% and 51%, respectively.

You can still have a bright future

AMD appears to be slightly more expensive than Nvidia at 58x future earnings, and its near-term growth will likely depend more on the PC market than the data center market. It will also remain an underdog in the GPU and CPU markets, instead of leading both markets like Nvidia and Intel. AMD is still a promising semiconductor company, but its broader diversification, slower growth rate, and lower market share will make it difficult for it to become the “next Nvidia” in the coming years.