Stocks have been in a bull market since October 2022. Coincidentally, about a month later in November 2022, the world was introduced to ChatGPT -- sparking a generational movement among investors, chasing anything and everything related to artificial intelligence (AI).
Among opportunities in the AI realm, perhaps none has witnessed more gains than semiconductor stocks. Since October 2022, the VanEck Semiconductor ETF has returned 194% -- absolutely dominating the Nasdaq Composite's (^IXIC 1.51%) return on 88% and the S&P 500's (^GSPC 1.00%) gain of 68%.
Chief among the chip stocks is Nvidia, which has soared by a mind-boggling 1,100% since the beginning of the current bull market. By contrast, Nvidia's top rival, Advanced Micro Devices (AMD 2.55%), has returned 110% over the course of the bull market.
While this isn't anything to turn your back on, it's not even in the same league as Nvidia. With that said, I think shares of AMD are priced to near perfection and could be on the brink of its on Nvidia-esque run.
Let's dig into why Nvidia has been all the rage among chip stocks over the last two years, and analyze why AMD could be headed much higher over the course of the next few years.
Nvidia had a first mover advantage, but...
Throughout the AI revolution, Nvidia's main bellwether has been its compute and networking business. Specifically, the company's Hopper and Ampere graphics processing unit (GPU) architecture have seen historical demand levels. GPUs are the engine that power generative AI applications. And for much of the last two years, Nvidia was the only major player in town.
Don't believe me? As it stands today, Nvidia owns 90% of the GPU market. Although a lead like that might discourage you from even considering an alternative to investing in Nvidia, I'd encourage you to keep an open mind.
Image Source: Getty Images
... AMD could be closing in on Nvidia's lead, and...
In December 2023, AMD released the MI300X data center GPU. While this was nearly a year after Nvidia had already been dominating the GPU market, AMD has witnessed some considerable success that I think is going overlooked.
First off, hyperscalers including Meta Platforms, Oracle, and Microsoft are all augmenting their Nvidia architecture with AMD's MI300 accelerators. While acquiring customers of this caliber is impressive, AMD's financial trends are what really have me excited.
Since the release of the MI300 architecture, AMD has seen its data center GPU business grow from effectively nothing into a multi-billion operation. Furthermore, AMD's data center business has continued to accelerate quarter after quarter; meanwhile, Nvidia's data center operation is actually beginning to show signs of slowing down.
This pace of growth has provided AMD with an estimated 10% share of the GPU opportunity -- effectively making the market an outright dual between AMD and Nvidia.
... investors may want to buy AMD stock hand over fist now, before it's too late
When the current bull market began in October 2022, Nvidia's market cap was just $280 billion. Today, the company is valued at more than $3.3 trillion -- more than tenfold what it was worth just two years ago.
NVDA Market Cap data by YCharts
Interestingly, AMD's current market cap of $200 billion is not that far away from where Nvidia was valued before it went parabolic. In my eyes, investors are really discounting AMD's potential over the next few years as the company continues scaling its data center business.
With successor GPUs already scheduled to release between this year and 2026, AMD is in a good position to continue disrupting Nvidia. As such, investors looking for more growth could eventually sour on Nvidia and turn to alternatives such as AMD.
While I still see Nvidia as a great opportunity, I think the days of 1,000%+ gains are in the rearview mirror. By contrast, I think AMD is in the early stages of its own epic run.
I see AMD as a bargain opportunity right now, and I think the company will be significantly higher three years from now as its chapter in the AI storyline continues to unfold.
