In This Article:
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 graphic processing unit (GPU) architecture underway, I'm not particularly surprised that Wall Street remains largely bullish on Nvidia.
But in the background, Advanced Micro Devices (NASDAQ: AMD) is quietly gaining some ground on Nvidia in GPUs -- the high-powered chips used in many artificial intelligence (AI) applications -- despite the incumbent's dominating presence. Below, I'm going to analyze the full picture at AMD and make the case for why I think the stock is a better buy than Nvidia during 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: AMD and Nvidia investor relations.
Not only is Nvidia a much larger business than AMD, but its sales and profit margins are growing at a much faster pace. Although 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 chart 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 dragging down the company's overall results.
What's even more encouraging is that AMD's data center revenue is now growing at nearly the same rate as Nvidia's. In other words, growth from Nvidia's data center GPU operation is 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 controls a staggering 90% of the AI GPU market. Coming in at a very distant second is AMD, which boasts an estimated 10% market share.
Similar to the growth figures I analyzed above, I see Nvidia's tight grip 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 sector. This first-mover advantage played a huge role in the company's ability to grab significant market share.
However, in December 2023, AMD introduced 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.