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Is Advanced Micro Devices, Inc. (AMD) a Better Buy Over NVIDIA (NVDA)?

We recently published a list of top 10 most buzzing AI semiconductor stocks in 2024. Since AMD ranks higher in the list, it needs a deeper look. But first, let's see what's happening in the semiconductor industry with a special focus on AI.

The semiconductor industry seems have found a new growth catalyst in the form of AI that could keep it thriving and abuzz for years to come, as analysts see no end in sight for the demand for AI-specific chips needed to power generative AI applications that would be ubiquitous from just a few years from now. Earlier this month, analysts at Citi published a bullish note for semiconductor stocks, citing strong March sales, which jumped about 15.7% year over year to total $50.6 billion. The figure was higher than Citi's $50.1 billion estimate. Citi analyst Christopher Danely highlighted that most of the demand bump came from analog and microcontrollers, which were up about 50% on a month-over-month basis.

Are AI Semiconductor Stocks Overvalued?

Semiconductor stocks have run so much on the back of the AI boom that many are voicing valuation concerns. And it's always surprising when such concerns come from Cathie Wood, one of the notable growth investors of this age who poured (and lost) a fortune into hyper-growth stocks trading at eye-popping valuations. In March, Cathie Wood warned that the semiconductor space could see a "correction." However, Wood clarified that she's just expecting a "correction" and not an "end" of the sector.


Since the end of March, VanEck Semiconductor ETF (NASDAQ:SMH) is up 10%.

But Cathie Wood isn't alone in these valuation worries. Analysts believe since the AI-rally is no longer limited to big names like NVIDIA Corp (NASDAQ:NVDA) and MSFT, investors should caste a wider net. And we did just that. Our latest research unlocked many AI-related stocks trading at attractive valuations. If you are looking for an AI stock that is as promising as Microsoft but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

For this article we used stock screeners and did manual research to see which AI-related semiconductor stocks were generating the most buzz. From these stocks we chose the ones with the highest number of hedge fund investors and strong YTD gains. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

An aerial view of a bustling semiconductor production zone showcasing the company’s integrated circuits.

Advanced Micro Devices, Inc. (NASDAQ:AMD)

YTD Price Performance: +19%

Last month Advanced Micro Devices, Inc. (NASDAQ:AMD) posted strong Q1 results. Adjusted EPS in the period came in at $0.62, beating estimates by $0.01. Revenue jumped 2.2% year over year to $5.47 billion, beating estimates by $20 million. For the second quarter, Advanced Micro Devices, Inc. (NASDAQ:AMD) expects revenue in between $5.4 billion and $6 billion, while estimates called for $5.72 billion.

J.P. Morgan analyst Harlan Sur said Advanced Micro Devices, Inc. (NASDAQ:AMD) can significantly increase its data center GPU revenue and can continue to poach market share from Intel in server and PC CPUs market.

Meridian Contrarian Fund stated the following regarding Advanced Micro Devices, Inc. (NASDAQ:AMD) in its fourth quarter 2023 investor letter:

“Advanced Micro Devices, Inc. (NASDAQ:AMD) is a global semiconductor chip maker specializing in central processing units (CPUs), which are considered the core component of most computing devices, and graphics processing units (GPUs), which accelerate operations running on CPUs. We invested in 2018 when it was a mid-cap value stock plagued by many years of underperformance due to lagging technology and lost market hi share versus competitors Intel and Nvidia. Our research identified that changes and investments made by current management under CEO Lisa Su had, over several years, finally resulted in compelling technology that positioned AMD as a stronger competitor to Nvidia and that its latest products were superior to Intel’s. We invested on the the belief that AMD’s valuation at that that time did not reflect the potential for its technology leadership to generate significant market share gains and improved profits. This thesis has been playing out for several years. During the quarter, AMD unveiled more details about its upcoming GPU products for the AI market. The stock reacted positively to expectations that AMD’s GPU servers will be a viable alternative to Nvidia. Although we pared back our exposure to AMD into strength as part of our risk-management practice, we maintained a position in the stock. We believe AMD will continue to gain share in large and growing markets and is reasonably valued relative to the potential for significantly higher earnings.”

Is Advanced Micro Devices, Inc. (NASDAQ:AMD) Better than NVDA?

It seems NVIDIA Corp (NASDAQ:NVDA) always takes the center stage when it comes to the AI semiconductor industry. Take a cursory look at the latest earnings calls and you'll see executives joining the NVIDIA Corp (NASDAQ:NVDA) praise chorus, chalking out plans to pile into more H100 GPUs. Advanced Micro Devices, Inc. (NASDAQ:AMD)'s latest results show a spectacular increase in data center revenue, but a lackluster increase in operating income (+26%) threw water on the enthusiasm around the stock. Advanced Micro Devices, Inc. (NASDAQ:AMD) bears also say the stock's P/E ratio of over 240 is amongst the highest in the chips industry. Surprisingly, AMD's forward P/E ratio is about two times higher than Nvidia's.

With NVIDIA Corp (NASDAQ:NVDA) valuations already raising concerns and AMD coming in not as attractive, what are the options for beginner investors who are looking to board the AI rally? The market is always presenting itself with opportunities for those who know where to look. If you are looking for an AI stock that is as promising as Microsoft but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

Advanced Micro Devices, Inc. (NASDAQ:AMD) ranks 5th in our list of the Top 10 Buzzing AI Semiconductor Stocks in 2024.


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Disclosure: None. This article is originally published at Insider Monkey.