Nvidia vs. AMD: Which Semiconductor Stock to Pick?
The recent fiscal third-quarter results from the giants of the semiconductor industry, including Nvidia and AMD, left investors cheering. At the same time, Intel's (INTC) investors were disappointed by the company's mixed bag of third-quarter results.
It is interesting to see the different directions taken by these semiconductor companies, with Intel investing more in its foundry business while AMD continues to see higher traction in its third-generation EPYC processors. In contrast, Nvidia continues to expand its artificial intelligence (AI) platform offerings by venturing into virtual reality with its Omniverse platform.
Using the TipRanks Stock Comparison tool, we will compare two such chip-making companies, Nvidia and AMD, and examine how Wall Street analysts feel about these stocks.
Nvidia (NVDA)Nvidia’s outstanding Q3 results and the emerging details about the Omniverse seemed to have spiked investors’ interest in the stock. Indeed, the stock has jumped 8.5% in the past five days.
The company posted record revenues of $7.1 billion in Q3, surpassing consensus estimates of $6.83 billion. The rise in revenues was fueled by a surge in demand for Nvidia’s AI platform, especially across hyper-scale and cloud computing.
Adjusted earnings came in at $1.17 per diluted share, an increase of 60% year-over-year, beating the consensus estimate of $1.11.
Jensen Huang, Nvidia’s Founder and CEO, referred to the Omniverse virtual reality (VR) service offering in its press release, saying, “Omniverse will be used from collaborative design, customer service avatars and video conferencing, to digital twins of factories, processing plants, even entire cities.” (See Analysts’ Top Stocks on TipRanks)
Referring to the new Omniverse offering, Jeffries analyst Mark Lipacis said he is “impressed with the company's ability to introduce new applications for its parallel processing ecosystem.” As a result, the analyst increased his estimate for earnings per share in 2025 from $12.50 to $16.40 “to incorporate revenues from its new Omniverse virtual reality service offering.”
Moreover, the analyst expects that the potential Omniverse total addressable market (TAM) from creator licenses could be worth $80 million, based on NVDA’s estimate of charging $2,000 annually for each user for a creative development license. The company expects to charge $1,000 every year per avatar and anticipates its user base could be 40 million.
Analyst Lipacis believes that “virtual reality will find its way into numerous other applications not yet fully comprehended by the market.”
As a result, the analyst raised the price target for Nvidia from $260 to $370 (12.2% upside) and reiterated a Buy on the stock.
Lipacis also felt heartened by CEO Huang’s belief that the success of the Omniverse over the near-term “will be driven by 1) developer support, 2) enterprise adoption, and 3) degree of collaboration among creators.”
The rest of the Street echoes Lipacis’s view, with a Strong Buy consensus on Nvidia, based on 22 Buys and 2 Holds. The average Nvidia price target of $359.09 implies 8.9% upside potential to current levels.
Advanced Micro Devices (AMD)Shares of AMD have soared 29.7% in the past month, driven by strong Q3 results and some key announcements at its Accelerated Data Center (ADC) Day earlier this month. According to Jeffries analyst Mark Lipacis, a key announcement by AMD on ADC day was that Meta Platforms (formerly Facebook) (FB) would be AMD’s customer when it comes to EPYC Central Processing Unit (CPUs).
The analyst views this announcement as “significant because FB strives to build environmentally conscious datacenters by using direct and evaporative cooling systems and is therefore highly focused on higher performance / Watt from its processors.”
Lipacis perceives FB’s selection of AMD as a “signal that AMD's Zen 4 CPU (Genoa) materially outperforms Intel's CPU offerings on this metric.”
At its ADC Day, according to the analyst, the chip company also unveiled a 3D chiplet technology for its EPYC server CPU, available in the first quarter of next year. Besides for this, AMD also announced Genoa and Bergamo (Zen 4) products on 5 nanometers (nm) to be launched next year and in the first half of 2023.
Genoa and Bergamo will have a high core count, ranging from 96 cores to 128 cores. Analyst Lipacis had written in another report that higher core counts are critical for efficient computing of cloud service providers (CSPs). (See Top Smart Score stocks on TipRanks)
Furthermore, the analyst pointed out that considering Intel’s Ice Lake server processor is at 40 cores, Lipacis believes that “AMD continues to gain server CPU share from Intel.”
The analyst added, “FB selecting AMD is a significant validation of AMD's CPUs, as FB focuses on environmentally conscious DC [data center] cooling systems, and consistent with our accelerating [market] share gains thesis for AMD.”
As a result, the analyst reiterated a Buy and a price target of $145 (6.7% downside) on the stock.
The rest of the Street has sided with Lipacis with a Moderate Buy consensus on AMD, based on 14 Buys and 8 Holds. The average AMD price target of $141.95 implies 8.6% downside potential to current levels, suggesting that the stock could have overshot its valuation.
Bottom LineWhile analysts are bullish about Nvidia, they are cautiously optimistic about AMD. It remains to be seen how Nvidia's foray into Omniverse plays out.
In contrast, AMD seems to be snapping up Intel's market share with its EPYC range of processors and continues to innovate further.
Based on the upside potential over the next 12 months, Nvidia does seem to be a better Buy.
Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article.
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