The chip market has witnessed an explosion in the past year, fueled by a surge in demand for robust hardware driven by the artificial intelligence (AI) boom. The increased interest in AI services has translated to a heightened need for graphics processing units (GPUs), the essential chips for training and running AI models.
As a consequence, the pioneers in this domain, Nvidia and Advanced Micro Devices, have experienced remarkable stock increases of 222% and 84% respectively since last April. These companies boast promising prospects in the AI sector over the long haul, courtesy of their thriving chip businesses, and they stand to benefit from the tailwinds in the market for years to come.
The AI market expanded to nearly $200 billion last year and is forecasted to maintain a compound annual growth rate of 37% until 2030. This trajectory could propel the sector to a size approaching $2 trillion by the end of the decade.
Given this trajectory, despite their soaring valuations this year, the shares of Nvidia and AMD likely hold significant promise for new investors over an extended period. Let’s delve deeper into these chipmakers and ascertain which is the superior AI stock in April.
The Dominance of Nvidia
Nvidia has been ubiquitous across headlines in the past year, emerging as the face of the AI explosion. In 2023, the company established a monopoly on AI chips, capturing an estimated 90% market share in GPUs, leading to a surge in its earnings.
In its fourth quarter of 2024 (ending in January), Nvidia witnessed a 265% year-over-year revenue spike to $22 billion. Operating income soared by 983% to nearly $14 billion. This remarkable growth was predominantly driven by a 409% upsurge in data center revenue, indicating a surge in AI demand.
The company’s free cash flow surged by 430% over the last year to over $27 billion, underscoring its ability to sustain investments in AI and uphold its dominance in the market.
With a commanding position as a leading chipmaker, Nvidia’s chips find applications in a wide array of areas, encompassing cloud platforms, video game consoles, laptops, custom-built PCs, among others.
Therefore, Nvidia remains a premier choice for tech investments, especially for those eyeing gains in the AI sphere.
The Rise of Advanced Micro Devices
While AMD may have arrived slightly late to the AI scene, playing second fiddle to Nvidia in this realm, the company is making substantial investments in the industry and forging lucrative partnerships that could propel it forward in the coming years.
Last December, AMD unveiled its MI300X GPU tailored for AI tasks, designed to rival Nvidia’s offerings and attracting major tech players like Microsoft and Meta Platforms as clients.
Furthermore, AMD is diversifying its portfolio by venturing into AI-powered personal computers (PCs). According to research by IDC, PC shipments are anticipated to see a notable upsurge this year, driven in part by AI integration. A Canalys report predicts that 60% of all PCs shipped in 2027 will be AI-enabled, underscoring the vast potential in this space for AMD.
Although AMD’s earnings have yet to fully reflect its substantial AI investments, the company’s recent quarterly report hints at a positive trajectory. In the fourth quarter of 2023, revenue ascended by 10% year over year to $6 billion, surpassing analysts’ approximations by about $60 million. The company’s AI-focused data center segment saw a 38% revenue growth, indicating its progress in this domain.
Choosing Between Nvidia and AMD as the Premier AI Stock
Nvidia and AMD are both primed to reap substantial rewards from the growth in AI for many years to come. Both stocks could fortify any portfolio over the long run, but earnings-per-share (EPS) estimations suggest that AMD may have more room for expansion in the next couple of years.
Estimates display that Nvidia’s EPS could reach $36 by fiscal 2026, whereas AMD’s could surpass $7. Initially, Nvidia may seem like the frontrunner. However, projecting these figures by the companies’ forward price-to-earnings ratios indicates stock prices of $1,260 for Nvidia and $329 for AMD.
Based on these calculations at recent prices, Nvidia’s stock is set to appreciate by 44% over the next two fiscal years, while AMD’s could surge by 93%. This significant variance underscores that AMD is in the earlier stages of its AI journey and holds more growth potential in the short term. Consequently, AMD emerges as a strong buy compared to Nvidia in the present scenario.
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