Nvidia‘s (NASDAQ: NVDA) stock price has soared, nearly quadrupling over the past year fueled by the overwhelming demand for its high-end data center GPUs essential for complex AI tasks. The surge in generative AI platforms like OpenAI’s ChatGPT has led to a supply-demand imbalance, propelling Nvidia’s revenue growth, with forecasts predicting an 81% surge by fiscal 2025 (ending January 2025).
The market’s attention is now shifting towards predicting the next big player in the tech industry. Could Advanced Micro Devices (NASDAQ: AMD) be the dark horse on the rise, akin to Nvidia?
Contrasting AMD and Nvidia
AMD, despite being the smaller contender with a market cap of $315 billion, is set to generate a fraction of Nvidia’s revenue this fiscal year. Their showdown in the discrete GPU market witnessed Nvidia holding an 80% share against AMD’s 19%, with Intel trailing at 1%.
While AMD typically offers more budget-friendly GPUs compared to Nvidia, the latter has adapted by introducing lower-end chips to stave off AMD’s encroachment in the lower-tier market segment. Furthermore, Nvidia had established a strong foothold in the data center GPU realm prior to AMD.
Unlike Nvidia’s sole focus on GPUs, AMD competes with Intel in x86 CPUs for both PCs and servers. AMD’s innovative strategy in delivering cost-effective, efficient chips through outsourced production at Taiwan Semiconductor Manufacturing has resulted in a steady growth in market share, presenting a formidable challenge to Intel.
In terms of product diversity, AMD boasts a wide array of offerings, with revenues drawn from various sectors including data centers, gaming, embedded chips, and client computing. On the other hand, Nvidia heavily leans towards data center GPUs, capturing 78% of its revenue from this segment in fiscal 2024.
AMD’s Growing Trajectory Compared to Nvidia
Despite AMD’s recent stagnation due to its heavy reliance on the PC market, which experienced a downturn post-pandemic, the company is eyeing a turnaround. Nvidia, in contrast, witnessed exponential growth, driven by robust sales in data center GPUs, resulting in remarkable revenue and EPS surges in fiscal 2024.
As AMD forays into the data center domain with AI-centric Instinct GPUs, CEO Lisa Su has indicated an uptrend in deployments, heralding it as the “fastest revenue ramp of any product” in company history.
Analysts anticipate a 14% increase in revenue and a 37% rise in adjusted EPS for AMD in 2024, with a further growth projection of 26% in revenue and 51% in adjusted EPS for 2025, bolstered by a stable PC market and an expanding data center business.
Paving the Way Forward for AMD
Despite a higher forward earnings multiple of 58x compared to Nvidia, AMD’s trajectory predicates a reliance on the PC market rather than data centers for near-term growth. While not likely to dethrone Nvidia in the AI domain, AMD is carving its niche by offering cost-efficient alternatives, appealing to major players such as Microsoft, Meta Platforms, Oracle, Dell, and Hewlett Packard Enterprise.
With slower growth rates and a lower market share, AMD’s path diverges from emulating Nvidia’s meteoric rise, offering a promising yet distinct investment avenue in the semiconductor realm.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Leo Sun has positions in Apple, Meta Platforms, and Nintendo. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Meta Platforms, Microsoft, Nvidia, Oracle, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and Nintendo and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.