Key Points
- Nvidia is profiting from the robust demand for GPUs in the gaming and data center markets.
- AMD is selling more CPUs for the PC and server markets as Intel tries to resolve its R&D and manufacturing issues.
- One of these chipmakers has more catalysts than the other.
Last December, I compared two of the market's hottest semiconductor stocks: Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD).
At the time, I said AMD was a better buy than Nvidia because I believed it was better insulated from macro headwinds, it would benefit from the arrivals of the new PlayStation 5 and Xbox Series consoles, and it would continue to grow its market share against Intel (NASDAQ:INTC).
However, Nvidia's stock price has rallied nearly 150% since I wrote that article, while AMD's stock has only advanced about 70%. Let's take a fresh look at both chipmakers to see if I made the wrong call last year.
What I got wrong about Nvidia
I had expected Nvidia's gaming and data center GPU businesses, which both experienced strong growth during the pandemic, to lose their momentum as the pandemic passed, people played fewer games, and data centers faced less pressure to upgrade their AI-processing servers. But that slowdown never happened.
Nvidia's revenue rose 53% to $16.7 billion in fiscal 2021, which ended back in January. That growth was led by its gaming and data center businesses, which easily offset the slower growth of its auto, professional visualization, and OEM businesses. Its adjusted gross margin expanded 310 basis points to 65.6%, while its adjusted net income surged 75% to $6.3 billion.
In the first nine months of fiscal 2022, Nvidia's revenue grew 65% year over year to $19.3 billion. Its gaming and data center businesses continued to grow, while its auto, professional visualization, and OEM segments all recovered as the pandemic-related headwinds waned. Its data center business also benefited from its takeover of the data center networking equipment maker Mellanox last April. Its adjusted gross margin rose 90 basis points year over year to 66.6%, and its adjusted net income jumped 83% to $7.9 billion.
Analysts expect Nvidia's revenue and earnings to grow 60% and 74%, respectively, for the full year. Those estimates notably don't factor in the potential success or failure of its $40 billion takeover bid for Arm Holdings from Softbank, which could be stuck in regulatory limbo for the foreseeable future.
What I got wrong about AMD
AMD performed very well over the past year, but it didn't actually gain much ground against Intel in the CPU market. Between the fourth quarters of 2020 and 2021, Intel's market share rose from 61.5% to 62.1%, according to PassMark, while AMD's share dipped from 38.5% to 37.8%.
AMD's share of the discrete GPU market also dipped from 20% to 17% between the third quarters of 2020 and 2021, according to JPR. Nvidia's share rose from 80% to 83%. AMD benefited from robust sales of Sony and Microsoft's new gaming consoles this year, but the ongoing supply chain shortages are capping those gains.
Yet AMD continues to grow. Last year, its revenue rose 45% to $9.76 billion, Its adjusted gross margin expanded two percentage points to 45%, and its adjusted net income more than doubled to $1.58 billion.
In the first nine months of 2021, its revenue grew 78% year-over-year to $11.6 billion, its adjusted gross margin rose from 44% to 47%, and its adjusted net income soared 146% to $2.31 billion. It attributed most of that growth to robust sales of its Ryzen CPUs for PCs and Epyc CPUs for servers.
Analysts expect AMD's revenue and adjusted earnings to increase 65% and 104%, respectively, for the full year. Those estimates don't include its planned purchase of Xilinx (NASDAQ:XLNX), which will complement its Eypc data center business with programmable chips.
The valuations and upcoming challenges
Nvidia trades at 62 times forward earnings, while AMD has a lower forward price-to-earnings ratio of 46. Analysts expect both chipmakers to generate slower growth next year, but Nvidia might have more catalysts than AMD.
Nvidia's core GPU business remains far ahead of AMD's, and the secular strength of the gaming and data center markets -- along with the recovery of its smaller end markets -- should support its long-term growth.
AMD is still a thorn in Intel's side, and it remains ahead of its larger CPU rival in the "process race" to create smaller and more advanced chips because it outsources its production to Taiwan Semiconductor Manufacturing (NYSE:TSM). However, that balance could eventually shift as Intel doubles down on its own first-party manufacturing efforts and tries to catch up to TSMC.
That looming threat, along with intense competition from Nvidia in the GPU market, could be preventing investors from paying a higher premium for AMD's stock, even though it's growing at a comparable rate as Nvidia.
AMD's planned takeover of Xilinx, which mirrors Intel's takeover of Altera six years ago, is also arguably more important to its long-term growth plans than Nvidia's planned purchase of Arm -- which would merely complement its existing business with new CPU design and licensing capabilities.
The winner: Nvidia
Both chipmakers are still great long-term growth plays. However, Nvidia clearly looks like the stronger investment than AMD right now -- even though it trades at significantly higher valuations.
精彩评论