Is Advanced Micro Devices, Inc. (AMD) is a better buy than NVIDIA (NVDA)?

We recently published the list Top 10 AI Semiconductor Stocks in 2024. Since AMD is higher on the list, it requires a deeper look. But first, let’s take a look at what’s happening in the semiconductor industry, with a focus on artificial intelligence.

The semiconductor industry appears to have found a new growth catalyst in the form of artificial intelligence that could keep it thriving and thriving for years to come, as analysts see no end to demand for the AI-specific chips needed to power the generational AI applications that will become ubiquitous by now. in a few years. Earlier this month, Citi analysts issued a bullish note for semiconductor stocks, citing strong March sales, which rose about 15.7% year-over-year to total $50.6 billion. The figure was higher than Citi’s estimate of $50.1 billion. Citi analyst Christopher Danely emphasized that most of the increase in demand came from analog processors and microcontrollers, the prices of which increased by about 50% month-over-month.

Is AI Semiconductor stock overvalued?

Semiconductor stocks have rallied so much on the artificial intelligence boom that many are expressing concerns about valuation. It’s always surprising to hear such concerns expressed by Cathie Wood, one of the seminal growth investors of our time, who has plowed (and lost) a fortune into hypergrowth stocks trading at eye-popping valuations. In March, Cathie Wood warned that there could be a “correction” in the semiconductor space. However, Wood clarified that she only expects a “correction” and not an “end” of the sector.

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

But Cathie Wood is not alone in these valuation concerns. Analysts believe that since the AI rally is no longer limited to big names like NVIDIA Corp (NASDAQ:NVDA) and MSFT, investors should cover a wider net. And that’s exactly what we did. Our latest research reveals that many AI-related stocks are trading at attractive valuations. If you’re looking for an AI stock that shows as much promise as Microsoft but trades at less than 5x earnings, check out our report on cheapest AI stocks.

In this article, we used stock screeners and conducted manual research to see which AI-related semiconductor stocks are generating the most buzz. Among these stocks, we chose those with the largest number of hedge fund investors and strong gains since the beginning of the year. Why are we interested in stocks that hedge funds invest in? The reason is simple: our research has shown that we can outperform the market by imitating the best stocks of the best hedge funds. As part of our quarterly newsletter strategy, we select 14 small- and large-cap stocks every quarter, and since May 2014, we have returned 275%, beating our benchmark by 150 percentage points (see more details here).

An aerial view of the bustling semiconductor manufacturing area, showcasing the company’s integrated circuits.

Advanced Micro Devices, Inc. (NASDAQ:AMD)

Year-to-date price performance: +8.64%

Last month, Advanced Micro Devices, Inc. (NASDAQ:AMD) reported strong first-quarter results. Adjusted EPS for the period was $0.62, beating estimates by $0.01. Revenue rose 2.2% year-over-year to $5.47 billion, beating estimates by $20 million. During the second quarter, Advanced Micro Devices, Inc. (NASDAQ:AMD) expects revenue of $5.7 +/- $300 million compared to the consensus estimate of $5.69 billion.

J.P. Morgan analyst Harlan Sur said that Advanced Micro Devices, Inc. (NASDAQ:AMD) could grow its data center GPU revenues to more than $5 billion in 2024 and continue to take share of the server and PC CPU market from Intel.

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

“Advanced Micro Devices, Inc. (NASDAQ:AMD) is a global semiconductor chip manufacturer specializing in central processing units (CPUs), which are considered the core element of most computing devices, and graphics processing units (GPUs), which accelerate operations performed on processors. We invested in 2018 when it was a mid-cap company that was struggling with years of underperformance due to lagging technology and losing high market share compared to rivals Intel and Nvidia. Our research found that changes and investments made by current management under CEO Lisa Su ultimately resulted over several years in compelling technology that positioned AMD as a stronger competitor to Nvidia and that its latest products were superior to Intel’s. We invested in the belief that AMD’s valuation at that time did not reflect the potential of its technology leadership to generate significant market share gains and higher profits. This thesis has been tested for several years. This quarter, AMD revealed more details about its upcoming GPU products for the AI market. The stock market reacted positively to expectations that AMD GPU servers will be a viable alternative to Nvidia. Although we have reduced our exposure to AMD as part of our risk management practice, we have maintained a position in the stock. We believe AMD will continue to gain share in large and growth markets and is reasonably valued relative to the potential for significantly higher earnings.

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

It seems like NVIDIA Corp ( NASDAQ:NVDA ) always takes center stage when it comes to the AI semiconductor industry. Take a cursory glance at the latest earnings calls and you’ll see executives joining the chorus of praise for NVIDIA Corp ( NASDAQ:NVDA ) as it outlines plans to introduce more H100 GPUs. The latest results of Advanced Micro Devices, Inc. (NASDAQ:AMD) shows spectacular growth in data center revenues, but weak operating revenue growth (+26%) dampened enthusiasm around the stock. Bears Advanced Micro Devices, Inc. (NASDAQ:AMD) also say the company’s stock P/E ratio of over 240 is among the highest in the chip industry. Surprisingly, AMD’s P/E is about twice as high as Nvidia’s.

With NVIDIA Corp ( NASDAQ:NVDA ) valuations already raising concerns and AMD not as attractive, what options do early-stage investors have to join the AI rally? The market always offers opportunities for those who know where to look. If you’re looking for an AI stock that shows as much promise as Microsoft but trades at less than 5x earnings, check out our report on cheapest AI stocks.

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Advanced Micro Devices, Inc. (NASDAQ:AMD) ranks No. 5 on our list of the top 10 AI semiconductor stocks for 2024.

If you’re looking for an AI stock that shows as much promise as Microsoft but trades at less than 5x earnings, check out our report on cheapest AI stocks.

READ NEXT: Michael Burry sells these stocks and Jim Cramer recommends them.

Disclosure: None. This article was originally published on Insider Monkey.