When it comes to semiconductor stocks, it seems like all anyone can talk about is Nvidia. With the launch of the company's new Blackwell GPU architecture underway, I'm not particularly surprised that Wall Street remains largely bullish on Nvidia.
But in the background, Advanced Micro Devices (AMD -4.76%) is quietly gaining some momentum on Nvidia -- despite the incumbent's dominating presence. Below, I'm going to analyze the full picture over at AMD and make the case for why I think the stock is a better buy than Nvidia over the next 10 years.
Here is what everyone is missing about AMD
The table below breaks down revenue and gross profit growth figures for both AMD and Nvidia during the third quarter.
| Company | Revenue Growth (% Year over Year) | Gross Profit Growth (% Year over Year) |
|---|---|---|
| AMD | 18% | 24% |
| Nvidia | 94% | 95% |
Data source: Investor Relations
Not only is Nvidia a much larger business compared to AMD, but its sales and profit margins are growing at a much faster pace. While this may imply that AMD is far behind its rival, I see the growth figures above as a bit of an illusion.
If you look at the segmented results in the image below, it becomes clear that AMD's data center business is thriving. Unfortunately, the company's gaming and embedded segments are declining across sales and gross profit -- thereby taking a drag on the company's overall picture.
Image Source: Getty Images
What's even more encouraging is that AMD's data center revenue is now growing at nearly the same rate compared to that of Nvidia. In other words, growth from Nvidia's data center GPU operation is actually decelerating at the same time AMD's is beginning to show signs of scaling.
When in doubt, zoom out
According to data compiled by Jon Peddie Research, Nvidia owns a staggering 90% of the AI GPU market. Coming in a very distant second is AMD, which boasts an estimated 10% market share.
Similar to the growth figures I analyzed above, I sees Nvidia's tight pulse on the GPU market as somewhat misleading. For much of the past two years, Nvidia did not have any competition in the data center GPU space. This first mover advantage played a huge role in the company's ability to acquire significant market share.
However, in December 2023, AMD launched its MI300 series of AI accelerators in an effort to start competing more directly with Nvidia's GPUs. In just one year, AMD has been able to scale its own data center GPU operation and acquire just enough incremental market share to make a dent in Nvidia's growth.
Considering AMD already has a line of successor GPU architectures scheduled to release between this year and 2026, I think the company is well on its way to become an ongoing headwind for Nvidia.
Image Source: Getty Images
AMD's valuation is too good to pass up
To me, an investment in AMD shouldn't revolve around whether you think the company will surpass Nvidia or become a larger player in the GPU realm. Rather, by taking a hard look at the trends explored throughout this article, I think there is a valid case to be made that AMD is in the early stages of exponential growth whereas Nvidia's trajectory over the next decade could become increasingly protracted.
Nevertheless, the market appears to be discounting this narrative entirely. As I write this, AMD is trading at a forward price to earnings (P/E) multiple of 23 -- it's lowest level in a year.
AMD PE Ratio (Forward) data by YCharts
In my eyes, AMD's data center business will eventually reach a point where its accelerating growth takes over and washes out any sluggish activity in other non-core segments such as gaming. At the same time, wider adoption of AMD's accelerators should help the company continue acquiring incremental market share in the GPU landscape.
Should this play out, I think the narrative surrounding AMD could quickly change and shares could begin to witness some rejuvenation as investors flock toward a new growth opportunity beyond Nvidia. I think now is a lucrative time to take advantage of the current price action and buy the dip in AMD stock.
