AMD vs Nvidia: which is the smarter investment?

The tech sector has been dominating market attention since 2023 thanks to the outbreak of AI chatbots, incredible gaming engine releases, global data center expansion, and more recently, text-to-video generation.

Based on the technological evolution in progress, NVDA and AMD both look to be on a long and bullish ride, but one of them does present as a better trading option, and it’s probably not the one you are thinking of.

Nvidia's stellar performance

Nvidia has truly outshone itself, with its stock value skyrocketing by over 80% this year alone. This surge is not solely a reflection of market sentiment, but a testament to the company's revenue growth, reliable profitability, and massive cash flow. Nvidia's valuation remains appealing as Q2 kicks in, holding a favorable Price-to-Earnings (PE) ratio of 30. The high PE suggests that Nvidia may still offer value to investors.

That all sounds great on paper, but opening up your trading account and going long on Nvidia may trigger a little apprehension. While AI tech and Nvidia might seem like the future of… well, almost everything, position traders like me prefer not to buy at all-time highs, and NVDA is very close to the top right now. Moreover, the recent rally has been parabolic, so the idea that it might be overbought and ready for a correction doesn’t seem unreasonable.

If you’re thinking about trading NVDA, you might be wise to wait for a fundamental report or new product release to help gauge which way the market might go.

So, Nvidia is high, and if its role in the world’s technological evolution remains solid, a continued rise seems likely… with perhaps a few bumps along the way.

AMD is armed and ready to go

Unlike NVDA, AMD’s March all-time high of $221 has since dropped to $181. The drop is no doubt tempting many traders to buy the dip, but before you consider AMD for your portfolio, let’s see if the current down has the potential to trend like back in 2022.

AMD stock increased by 24.25% this year. While that may sound modest compared to Nvidia, the company’s 24.96% projected earnings per share growth over the coming five years underscores its position as a major player in the tech sector. In general, it’s blue skies and smooth waters for AMD, but there are a few tiny clouds on the horizon and some of the media have decided to focus on it.

AMD’s PE ratio is 33, which has provoked some analysts to say the market and investors have high expectations for the company. A high PE ratio is said to suggest that the stock price is high compared to its earnings, indicating that investors are expecting significant growth, and if that growth doesn’t happen with consistency, investors typically start to sell.

Adding to that gem of doubt that recently emerged throughout financial media, China’s replacement of Western-branded computers in government is being cited as the cause for AMD’s March crash. A bizarre and possibly random assumption that triggered a sentiment shift that cost AMD over $50 billion in market cap.

Why would such a minor change result in a $50 billion market cap dump?

There’s more to that story than is publically known. 

In general, as long as AMD stays relevant, it will likely play a major role in the AI boom. AMD’s next-generation CPU microarchitecture known as Zen 5 is about to drop, and leaks suggest it is a game-changer, which will support the already widespread Ryzen series processors.

So again we face the title question–smart investment? With rumors rumbling of another bearish correction circulating, market sentiment might instigate further selloffs and heightened volatility, but in general, AMD has a bright future. In the long term, we might see steady growth for years to come, with some sizable market surprises punctuating successes and failures.

Conclusion

Nvidia's exceptional performance, coupled with its strategic positioning and favorable valuation, might edge it out as the more enticing investment for those looking to capitalize on the tech industry's growth. 

AMD also remains a solid competitor with promising growth prospects, and the current dip, if the downtrend doesn’t return, makes for a very tempting entry point.

Both AMD and Nvidia offer exciting prospects for investors, driven by their innovative technologies and significant roles in the semiconductor industry's future.

This is not investment advice. Past performance is not an indication of future results. Your capital is at risk, please trade responsibly.

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Author:

Paul Reid

Paul Reid is a financial journalist dedicated to uncovering hidden fundamental connections that can give traders an advantage. Focusing primarily on the stock market, Paul's instincts for identifying major company shifts is well established from following the financial markets for over a decade.