Nvidia
Last year, Nvidia impressed Wall Street with its explosive corporate growth amid the rise of artificial intelligence (AI). Its stock has risen 224% in the past year along with its earnings. Growing interest in artificial intelligence led to increased demand for graphics processing units (GPUs), and Nvidia was perfectly positioned to bring its hardware to market.
It looks like the chip maker still has a lot of potential to grow. But due to its meteoric rise over the past 12 months, it is now a somewhat expensive investment choice. Because of this, many investors are currently looking for the “next Nvidia”—a business that has the ability to meet the growing demand for chips and deliver profits at least as large.
AMD
Compared to Nvidia, Advanced Micro Devices (AMD -0.03%) looks like a logical choice. The business has strong positions in many of the same sectors and has long held the second largest share of the desktop GPU market. Meanwhile, AMD will release a new AI GPU this year that aims to compete with Nvidia’s products.
It may not be possible for AMD to dethrone Nvidia. But given how fast industries like AI are expanding, Nvidia will probably be able to maintain its lead and AMD will probably be able to establish itself as the industry leader in AI chips.
Chances are AMD can become the next Nvidia to make a big splash in AI this year
After OpenAI’s ChatGPT launched in November 2022, many began to question what AI was capable of now. When people realized that the technology could improve a wide range of industries, including healthcare, consumer goods, education, manufacturing, autonomous vehicles, and more, excitement grew.
As the leading chip supplier for a fast-growing market, Nvidia excelled. However, its success showed how far behind AMD and other chipmakers were in AI.
As a result, AMD devoted the rest of the year to building hardware capable of competing with Nvidia, and its updated chips are now available. When AMD debuted the MI300X AI GPU in December last year, the firm claimed it outperformed the H100 by 10% to 20% and was on par with Nvidia’s H100 for training.
With Microsoft announcing in November that its Azure cloud platform will be the first to use the MI300X to improve its AI capabilities, AMD’s new CPU is already attracting attention. With a 49% investment in OpenAI, Microsoft is a key partner for AMD. AMD has a bright future in AI, especially with its arrangement with Meta, which will see it use new chips.
Nvidia became the first chipmaker with a market capitalization of more than $1 trillion in 2023. However, this may indicate that it has significant long-term growth potential.
Does AMD’s Stock have the same Growth Potential as Nvidia’s?
AMD is gearing up for what could be a very successful growth year. The company’s shares could become among the best investments available right now if it can achieve half of Nvidia’s growth in 2023.
Although the firm has made significant investments in this area, AMD is still relatively new to the AI space, as seen by its earnings. Consequently, the price-to-earnings (P/E) and price-to-free cash flow ratios (as shown in the chart above) indicate that AMD’s stock is significantly more expensive than Nvidia’s.
These metrics, which consider a company’s financial health, help determine a stock’s value. The better the value for both, the lower the figure.
Over the past year, Nvidia’s free cash flow has grown 360% to nearly $17 billion, while AMD’s has fallen 47% to $1 billion. AMD is losing money, which is driving its stock down. As a result, it may be worthwhile to hold off investing in AMD stock until its price falls to a more attractive level.
Additionally, AMD’s earnings per share (EPS) forecast over the next two fiscal years suggests that it could reach $5 per share, while Nvidia’s could reach $24 per share. Multiplying these numbers by the forward P/Es of the two firms (45 for Nvidia and 38 for AMD), the resulting stock prices are $1,080 for Nvidia and $190 for AMD.
If the forecasts prove correct, AMD’s stock will rise 30% and Nvidia’s stock will rise 97% over the next two fiscal years. With the right resources and experience, AMD could eventually catch up to Nvidia in the AI space. But currently, it is too risky because of its high stock price; Nvidia is still a better choice.
Ada Spark is a tech explorer and creative content creator with 6+ years of experience. Appreciate teamwork and creative strategies to promote content. Always looking to work according to the latest trends and create content that makes a difference. Also familiar with infographics and other forms of content.
