Why Nvidia Stock Is a No-Brainer Choice Over AMD
Nvidia (NASDAQ: NVDA) has been on a monster run since the start of 2023, but so has peer AMD (NASDAQ: AMD). While AMD is up a respectable 140% since 2023 began, Nvidia has dwarfed its run by rising around 700%. This has led some investors to believe that AMD could be slated to outperform Nvidia moving forward, but there's a lot more to that argument.
Despite its outperformance, I still think Nvidia is a better investment choice than AMD, as there is more to a company than stock price performance.
Nvidia's business is firing on all cylinders
Both companies make hardware for computers of all varieties, but the extent of their product lines varies between them. Nvidia is laser-focused on making the best graphics processing units (GPUs). It has other product lines too, but those are meant to complement its GPUs.
AMD also makes GPUs, but they aren't as advanced as Nvidia's, and they lack top-tier software allowing their users to extract the most computing power. So, when compared head-to-head in the GPU space, Nvidia's product reigns supreme.
But AMD has a much larger product line than just GPUs. The company has significant exposure to consumers through its client division, which makes CPUs for PCs. It also makes products for various gaming consoles and has an embedded processor line that allows clients to specify chips that are highly customized to their application. In addition to its data center GPUs that compete with Nvidia, it also has a wide variety of other components that go into these cutting-edge servers.
Because AMD is much broader than Nvidia, it can't cash in on one massive trend. This is one reason why AMD has underperformed Nvidia, as AMD's results have been a mixed bag by division.
AMD Segment | Q2 Revenue Total | YOY Growth |
|---|---|---|
Data Center | $2.83 billion | 115% |
Client | $1.49 billion | 49% |
Gaming | $648 million | (59%) |
Embedded | $861 million | (41%) |
Data source: AMD. Note: YOY = Year over year.
Fortunately, AMD's biggest segments are the ones that are growing the fastest, but the other struggling divisions are still acting as an anchor to the overall business.
Nvidia has a similar setup to AMD, with different divisions. However, its data center segment is so large that it makes the others practically insignificant when assessing the business.
Nvidia Segment | Q2 Revenue Total | YOY Growth |
|---|---|---|
Data Center | $26.3 billion | 154% |
Gaming and AI PC | $2.9 billion | 9% |
Professional Visualization | $454 million | 20% |
Automotive and Robotics | $346 million | 37% |
Data source: Nvidia. Note: YOY = Year over year. Note: Nvidia's Q2 ended July 28.
With the data center division doing so well and being much larger than any other division, Nvidia has become a great way to invest directly in the artificial intelligence (AI) infrastructure build-out trend, which is slated to continue for a long time.
This is why Nvidia looks like a much better pick right now. But if AMD could be bought at the right price, it may not be a bad investment, either.
AMD stock trades for a higher premium despite Nvidia's market dominance
Normally, when two companies compete with each other, the winner holds a premium valuation to the company in second place. However, that's not the case with AMD and Nvidia.
AMD PE Ratio (Forward) data by YCharts
From a forward price-to-earnings (P/E) ratio, AMD is more expensive than Nvidia despite Nvidia's higher performance. This doesn't make a lot of sense, so if you're trying to decide between the two, it's likely better to buy the stock that is performing at a higher level and is cheaper than the other.
Nvidia remains a no-brainer choice over AMD as an investment right now. Its exposure to one of the biggest industry trends since the internet exploded is massive. If investors want direct exposure to the trend, then buying Nvidia stock instead of AMD is smart.
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Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.
