|
Proprietary Data Insights Financial Pros’ Top Semiconductor Stock Searches in the Last Month
|
||||||||||||||||||||||||||||
How AMD is Taking on Nvidia and Winning
|
|
|
No one can deny that Nvidia (NVDA) is the AI market leader. Yet, Advanced Micro Devices (AMD) is making a run for their market share. The company’s earnings report yesterday showed revenues up 9% from the prior year, while net income jumped 10x compared to Q2 2023 as well as doubled from Q1 2024. But the big news was that sales for the data center (where AMD sells its AI chips) jumped 115% year over year, entering Nvidia’s growth territory. The numbers certainly impressed financial pros, who searched out the stock two-to-one over Nvidia on Wednesday. However, operating income is still 75% of what it was in 2022 and a quarter of 2021’s numbers. Yet, shares are roughly the same price as they were back then. So, is it worth buying into the growth story now or is the valuation too rich to stomach? AMD’s Business AMD has transformed from an underdog to a formidable force in the semiconductor industry. This chip designer challenged Intel’s (INTC) dominance in CPUs and won. Now, it competes with Nvidia in GPUs, carving out a unique position in high-performance computing and graphics. AMD develops cutting-edge processors for a wide range of applications, from personal computers to data centers and gaming consoles, powering popular gaming platforms such as Xbox and PlayStation. Unlike Intel or Taiwan Semiconductor, AMD focuses solely on design and outsourcing manufacturing to foundries. AMD segments its business into the following areas:
Source: AMD Q2 2024 Earnings Presentation In its latest quarter, AMD reported revenue of $5.8 billion, up 9% year-over-year, driven by strong growth in its Data Center and Client segments. The company’s AI-focused products, particularly its Instinct GPUs, have seen significant traction, with Microsoft announcing the general availability of Azure ND MI300X V5 instances powered by AMD’s AI accelerators.
Source: AMD Q2 2024 Earnings Presentation AMD’s primary AI offering, the Instinct MI300 series, combines CPUs and GPUs on a single chip using advanced packaging technology. This approach, known as an APU (Accelerated Processing Unit), aims to reduce data movement and improve overall efficiency. These chips leverage AMD’s CDNA architecture, optimized for compute-heavy tasks like AI training and inference. While AMD competes on price, Nvidia is already entrenched with many customers, including a robust ecosystem and established software such as more plug-and-play experience. However, in terms of raw performance, AMD’s chips come pretty close to Nvidia’s.
Financials
Source: Stock Analysis Pandemic-driven semiconductor supply shortages helped AMD deliver massive revenue increases three years in a row. Yet, despite those pressures easing, AMD has managed to retain its premium pricing. As margins improved, management plowed cash back into R&D in an effort to retain its industry-leading position. If AMD continues to take more of that AI pie, it’ll be money well spent. Valuation
Source: Seeking Alpha The question is, do you want to pay for growth? AMD costs 96x forward earnings and 131x operating cash flow compared to Nvidia at 40x and 63x respectively, roughly half the cost. Other companies like Broadcom (AVGO) and Intel cost even less. Growth
Source: Seeking Alpha AMD’s growth is admirable. Yet, it’s less than half Nvidia’s 3-year average, and next year’s is expected to be a fraction of Nvidia’s. In fact, AMD’s forward revenue growth is barely higher than Micron’s (MU). However, 2025’s revenues are forecasted to grow 30% over 2024’s Profitability
Source: Seeking Alpha AMD’s profitability would be significantly better if they didn’t plow $4 billion more into R&D every year. So, it’s tough to judge what margins may look like down the road.
Our Opinion 6/10 If AMD wasn’t spending as much on R&D, it would trade at roughly 43x cash. So, you can make an argument it that the current valuation measures don’t accurately reflect the company’s real value. However, Nvidia offers as good or better growth yet still delivers excellent margins. So, why can’t AMD? They both run different businesses and serve different clients. Yet, in our opinion, that doesn’t justify the premium placed on AMD. |
|
News & Insights |
Just Spilled
|
|
Want to get content like this directly to your inbox? |