Nvidia (NASDAQ: NVDA) has been a top performer on the stock market over the years, with shares of the graphics card specialist rising more than 3,600% over the past decade.
However, Nvidia stock has witnessed a brutal sell-off over the past year. The broader market correction has sent shares of Nvidia packing, with the tech giant losing more than 60% of its value since December 2021. The sell-off has brought Nvidia's market capitalization down to just over $300 billion from more than $800 billion in December last year.
The bad part is that Nvidia may not be out of the woods yet. The chipmaker is struggling with an oversupply in the gaming graphics card market due to higher production and weak demand. This caused a big drop in the company's gaming revenue last quarter, and Nvidia's outlook indicates that this segment may not recover anytime soon.
And now, the data center business could be in trouble thanks to the restrictions imposed by the U.S. government on sales of chips to China. These headwinds could keep Nvidia stock under pressure and lead to more downside. However, there are certain chipmakers that are clocking impressive growth and could easily outperform Nvidia -- namely, Qualcomm (QCOM -1.09%) and Advanced Micro Devices (AMD -0.72%). Let's see why these two companies could be worth more than Nvidia by 2025.
Qualcomm exhibits strong growth potential
While Nvidia's top line is expected to remain flat in the current fiscal year and its earnings are forecast to contract, an entirely different story is unfolding at Qualcomm. The company, whose chips are used in a variety of applications ranging from smartphones to the Internet of Things (IoT) to vehicles, is expected to finish fiscal 2022 with a 32% jump in revenue and a 47% spike in earnings per share versus the prior-year period.
Qualcomm's terrific growth can be attributed to the robust demand for its chips across all the industries it serves. The company's revenue from selling smartphone chips was up 59% year over year in the third quarter of fiscal 2022 (for the three months ended June 26, 2022), while automotive and IoT revenue increased 38% and 31%, respectively.
The semiconductor company's quarterly revenue of $10.9 billion was up 37% over the year-ago period. Its adjusted earnings increased 54% to $2.96 per share. The good part is that Qualcomm's end markets are set to get bigger in the long run. Qualcomm had pointed out at its investor day in November last year that its addressable revenue opportunity is on track to increase from $100 billion to $700 billion by the end of the decade.
More importantly, Qualcomm's guidance through fiscal 2024 suggests that its impressive growth rate is sustainable. The company anticipates revenue from the Qualcomm CDMA Technologies (QCT) segment to clock a compound annual growth rate in the mid-teens through fiscal 2024, and it expects its margins to remain stable. The QCT segment includes chip sales to the smartphone, IoT, and automotive markets, and it accounts for 86% of the company's total revenue.
However, it won't be surprising to see Qualcomm's biggest segment grow at a faster pace thanks to solid growth in design wins in the automotive market. The company recently announced that its potential automotive revenue pipeline has increased to $30 billion from $19 billion at the end of fiscal Q3.
Meanwhile, other fast-growing niches such as the metaverse and IoT should help the chipmaker sustain its robust growth rate. Assuming Qualcomm's mid-teens revenue growth rate translates into a similar bottom-line growth rate of 15%, its earnings could jump to $19.09 per share in 2025. Multiplying the projected earnings after three years with Qualcomm's five-year average earnings multiple of 26.8 would translate into a stock price of $511, which would be a 325% increase over its current stock price.
This also means Qualcomm's market cap could exceed $570 billion in 2025 versus the current level of $134 billion. Nvidia presently has a market cap of $309 billion and it is surrounded by multiple headwinds, so the possibility of Qualcomm becoming a bigger company cannot be ruled out.
Advanced Micro Devices continues to gain in data center market
AMD is another company that could be worth more than Nvidia after three years based on its current momentum and solid prospects.
Analysts forecast 26% annual earnings growth from AMD over the next five years. The chipmaker is expected to finish 2022 with earnings of $4.35 per share. Applying the projected growth rate for three years to AMD's 2022 bottom-line estimate means that its earnings could increase to $8.70 per share in 2025.
AMD's five-year average forward earnings multiple stands at 39. Multiplying that with the forecast earnings after three years would translate into a stock price of $339, which is five times the company's current stock price. What's more, AMD's current market cap of $107 billion indicates that it could become a $500 billion-plus company by 2025, eclipsing Nvidia in size if the latter doesn't regain its mojo.
There are multiple reasons why AMD could match or even outpace analysts' growth expectations in the next three years.
Let's begin with the data center market. AMD sells both graphics cards and server processors used in data centers. The demand for these chips is healthy based AMD's second-quarter 2022 results. The company's data center revenue was up a whopping 83% year over year last quarter to $1.5 billion. AMD has generated nearly $2.78 billion in revenue from the data center business so far this year, which translates into an annual run rate of $5.5 billion.
However, AMD sees a $42 billion revenue opportunity in the data center processor market in the long run. More importantly, it is gaining market share impressively in this space, which should help it maintain its terrific data center revenue growth in the long run. However, server processors are just one of the many opportunities for AMD in the data center market.
Including graphics cards, field-programmable gate arrays (FPGAs), and data processing units, AMD estimates a massive opportunity of $125 billion in the data center market. The good part is that AMD is pulling the right strings to take advantage of these niches. The company's acquisition of Xilinx, which was completed earlier this year, makes AMD a big player in the FPGA space.
As such, AMD looks set to deliver solid long-term growth and it could become a bigger semiconductor stock than Nvidia thanks to the catalysts discussed above. What's more, buying the stock right now looks like a no-brainer, as its trailing earnings multiple of 28 represents a big discount to its five-year average multiple of 101.
