Nvidia Vs. AMD: A Clear Choice
The AI Wars should support the growth outlook for both Advanced Micro Devices, Inc. (AMD) and NVIDIA Corporation (NVDA). Click here for more.
Nvidia Vs. AMD: A Clear Choice
Summary
- The AI Wars should significantly boost and support the growth outlook for Advanced Micro Devices, Inc., and even more heavily NVIDIA Corporation, for the foreseeable future.
- Both stocks have partly recovered from the recent plunge in 2022, with Nvidia having an impressive recovery of around 65% YTD.
- The market is undervaluing AMD's bright prospects in the data center, and the stock price remains below my short-term target price of $100.
- The AI hype has aided in closing NVDA's undervaluation gap, offering limited upside potential from current levels.
- We're currently running a sale for our private investing group, Yiazou Capital Research, where members get access to portfolios, market alerts, real-time chat, and more. Learn More »
Market Outlook & Investment Thesis
In October 2022, the Biden administration introduced export sanctions on specific technologies, including integrated circuits and wafer fabrication equipment for semiconductor chips. The new regulations were introduced in response to concerns about national security and intellectual property theft, particularly by Chinese companies.
The impact of these export sanctions was significant in the integrated circuits and wafer fabrication equipment industries. NVIDIA Corporation (NASDAQ:NVDA) estimated that its quarterly revenue could dip by $400 million if Chinese buyers were excluded, which caused its stock price to plummet. The new regulations will be phased in before full implementation in September 2023, so Nvidia will have time to adjust to the new regulatory environment.
Shortly before the announcement in October, all semiconductor stocks were declining, but NVDA has suffered the most with around a 40% plunge. On the contrary, Advanced Micro Devices, Inc. (NASDAQ:AMD) stock was more resilient to these forces, but the overall negative sentiment on the sector has suppressed AMD's valuations to lower levels, creating a very attractive entry point.
Two months later, the market has already rewarded Nvidia for its exposure to the AI hype supported by the OpenAI (i.e., ChatGPT). Despite the strong pullback, NVDA had a strong bull run YTD with a staggering 65% return. However, both stocks remain below their all-time high levels, but AMD offers a more attractive risk/reward profile for the moment, earning the buy rating, while NVDA is a hold since most of the improving outlook has already been priced in the stock.
AI Growth Supports Nvidia's Potential
Nvidia is anticipating continued challenges in the coming quarter due to its ongoing efforts to fix some of its activities. However, the management expects a recovery later in the year. Despite a sharp decline in the gaming unit caused by a drop in PC sales and excess inventory, the demand for new graphics cards is expected to remain strong, which should help the unit to regain its growth.
Additionally, the company is confident that its data center products will experience accelerating sales growth, supported by strong interest among cloud providers, internet firms, and enterprises to invest in Artificial Intelligence (AI). The popularity of generative AI tools has increased the adoption of AI and is seen as a turning point in this regard. The company plans to capture even more potential growth in AI through a new cloud service for enterprise customers. Nvidia's GPUs, advanced networking products, and software functionality are expected to remain in high demand due to their ability to provide computing power for complex AI models.
The company's latest flagship product, Hopper (H100) GPU, offers significant acceleration in computing power, which is essential when demand for such technology is increasing, mainly due to the popularity of generative AI tools like OpenAI's ChatGPT. More specifically, the H100 is up to 30 times faster at AI inferencing for transformer-based large language models like Open AI's ChatGPT than its predecessor. As a result, the AI Wars and intense competition between Microsoft Corporation (MSFT) and Alphabet Inc. (GOOGL) should support Nvidia's growth for the foreseeable future.
Despite some hyper-scale cloud providers' austerity measures, Nvidia is expected to thrive due to the massive investments from Meta Platforms, Inc. (META) and Microsoft in AI and machine learning workloads. As a result, the market for AI networking is expected to grow to over $8 billion in 2027, with a CAGR of approximately 40%, with Nvidia being a key beneficiary of it.
Nvidia is confident in the growth potential of its data center unit, its fastest-growing segment with a 5-year CAGR of 66%, surpassing the gaming segment's growth and accounting for 40% of revenue in 2022. The company expects the data center segment to reach 51% of revenues in the first half of 2023, as significant spending from large cloud and internet companies, start-ups, and enterprises keen to invest in AI.
In response to this growing interest, Nvidia has introduced a new AI Cloud Service called Nvidia DGX Cloud. The service will be hosted by major cloud providers such as Microsoft, Oracle, and Google and will offer access to the Nvidia AI Enterprise software suite to train large language models on Nvidia's DGX systems. The service targets companies looking to create AI models and services by combining public and private infrastructure.
The gaming activities are expected to resume growth this year as large excess inventories have mostly been cleared. The recent collapse in card demand results from severe PC weakness, excess inventories, and renewed crypto-related disruption. However, there is evidence of high interest in Nvidia's latest graphics cards for PC gaming. The firm's products remain very competitive, and the management is also putting the firm in a strong position to benefit from emerging trends, such as allowing gamers to stream games from the cloud and play these on any device. The approach can extend the firm's gamer reach and fuel demand for Nvidia's data center products.
Nvidia's partnership with Foxconn to build automated EVs could aid its automotive segment, which has about $11 billion in design wins. Though the unit's sales growth was muted last year compared with rival Qualcomm, I consider Nvidia's full suite of software and graphic chip capabilities may drive faster revenue gains from the legalization of driverless vehicles.
AMD Enjoys An Increasing Data-center Share But Weakening PC Market Demand
Inventory correction and weak demand in PCs will likely persist through 1H as AMD continues to under-ship to clear the channel before recovery resumes in 2H23 in its Client and Gaming segments. However, share gains in its Data Center segment and ramp-ups from next-generation product launches with higher ASPs (EPYC and Genoa) could spur year-over-year (YoY) growth. Although weak demand for client PCs and Gaming may continue to pressure 1H, growth could resume in 2H after inventory normalizes.
AMD is improving its competitiveness across CPU and GPU products with Ryzen, EPYC, and Radeon Vega platforms and is on track to improve its market share and drive meaningful revenue growth in the near term. However, long-term share gains are less certain, and AMD must invest heavily in R&D to keep pace with the market leaders.
AMD's December quarter results were strong due to improved revenues from Data-center and Embedded segments, which offset the continued weak demand in PC/Gaming and inventory work downs across the PC supply chain. The company expects the PC/Gaming demand weakness to continue into the March quarter, along with a 1H data-center customer inventory digestion. As a result, the management has provided conservative guidance for the March quarter and has refrained from providing full-year 2023 guidance like its peer companies. However, the management is more optimistic about the potential YoY revenue growth in 2023 driven by growth in its Data-center and Embedded businesses, combined with continued market share gains.
Given the strategic importance of AMD's high-performance CPUs to support its customers' AI/analytics initiatives, the team has strong visibility into its cloud customer roadmap, where spending remains resilient. Additionally, given the lower mix of Data-center sales and PC pricing headwinds, the management expects the margin to trend in the 50% range through the 1H of the year before expanding in the 2H of the year as demand recovers.
Overall, while the PC client business is undergoing substantial declines to burn off excess inventory, the team is exiting this downturn with a much more diversified business model, which is in part a reflection of the team's strategic initiatives. To put it into perspective, the PC client business for AMD is 15-17% of sales, whereas Intel Corporation's (INTC) is 43-45% of sales.
Though weakness in its Client and Gaming segment was no surprise, given prevailing inventory digestion and weak demand in PCs, AMD's share gain in Data centers and relative strength in its semi-custom business could help it outperform rivals despite a challenging economic backdrop. Despite softness in the data-center market and elevated inventory at some cloud customers, AMD is confident it can leverage recent share gains and drive YoY growth in its Data Center segment, fueled by new product ramp-ups and higher average selling prices.
However, with the outgoing Chief Financial Officer Devinder Kumar, appointing a new CFO could create some execution risk. In addition, top-line growth is likely to decelerate amid a down cycle in semiconductors. Lastly, supply-chain diversification will be a key challenge for new CFO Jean Hu amid U.S.-China tensions.
AMD's 3D V-Cache Packaging Technology Could Unseat Intel
AMD could retake the lead in gaming CPUs with its new Ryzen 7000 series chips with 3D V-Cache memory technology. The company's Ryzen 5800 3D V-Cache memory struggled with compute performance, especially for non-gaming workloads, and was quickly overtaken by Intel's 13th-generation Raptor Lake processors.
The new Ryzen 9 7900X3D series, unveiled at CES 2023, has overcome those issues and may become the preferred CPU for gamers. In addition, the new chips put memory even closer to the processor for faster speeds. On the other side, Intel is reportedly close to launching a new version of Raptor Lakes that will challenge AMD. However, as packaging advances, next-generation DDR5 adoption will rise, driving revenue and margin growth for memory suppliers.
Conclusion
Due to macroeconomic uncertainty, Advanced Micro Devices, Inc. did not issue a full-year forecast. Still, it is reasonable to expect that AMD will resume double-digit sales growth in the second half of 2023. As long as the market remains concerned with AMD's declining PC and gaming revenues while undervaluing AMD's bright prospects in the data center, the AMD stock price remains below my short-term target price of $100.
On the contrary, despite the optimism in the market and the improved outlook, Nvidia stock trades around its fair value. Therefore, the recent AI hype has aided in closing Nvidia Corporation's undervaluation gap, with shares offering limited upside potential from current levels and an unfavorable risk/reward profile.
This article was written by
I am the founder of Yiazou Capital Research, a stock-market research platform designed to elevate the due diligence process through in-depth analysis of businesses.
I previously worked for Deloitte and KPMG in external & internal auditing and consulting.
I am a Chartered Certified Accountant and a Fellow Member of ACCA Global, and I hold BSc and MSc degrees from leading UK business schools.
In addition to my research platform, I am also the founder of a private business.
My primary strategy focuses on high-quality, free cash flow generative stocks with an above-average growth rate and a strong business moat.
I manage my own highly concentrated portfolio, and I occasionally engage in short-term trades to profit from asset mispricings when Mr. Market does not feel very well.
Analyst’s Disclosure: I/we have a beneficial long position in the shares of AMD, INTC, TSM either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Comments (69)
Vega + 87%
Polaris + 86%Nvidia full product lineAD last three weeks + 9%
GA + 76%
TU + 29%
Pascal < 10%
Maxwell < 2.4%mb
Camp Marketing - GPU TODAY
189 GPU grade SKUs ranked by % channel available 3.13.23Top 10 SKUs = 53.81% of channel available today.
Top 20 SKUs = 66.70%.
Top 30 SKUs = 75.52%
Top 40 SKUs = 81.91%
Top 50 SKUs = 86.28%
Top 60 SKUs = 89.70%
Top 70 SKUs = 92.18%
Top 80 SKUs = 94.21%
Top 90 SKUs = 95.89%
Top 100 SKUs = 97.31%Concentration of top SKU secondary sales potential is reasonable despite the rapid influx of Ampere generation product into the channel for resale over the last three weeks.Channel would not have ordered by grade SKU weight this way, unless they thought they could move it, let's see the channel clear this clean up challenge.AMD full product line channel available in the last three weeks;RDNA lll + 46.5% on meager volume
RDNA ll < 2.2% flattish
RDNA l channel available in the last three weeks + 57%
Vega + 87%
Polaris + 86%Nvidia full product line channel available in the last three weeks;AD last three weeks + 9%
Ampere GA + 76%TU + 29%
Pascal < 10%
Maxwell < 2.4%For immediately prior GPU TODAY at 2.20.23 see that post for comparing how grade SKU ranks have changed in the prior 3 weeks here;seekingalpha.com/...At GPU grade SKU rank #23 by SKU available falls to less than 1% each. 1 = 3060 =11.56%
2 = 2060 Max-q = 8.52%
3 = 3090 = 6.73%
4 = 3080 10 =5.49%
5 = 2070 = 5.16%
6 = 1650 = 4.68%
7 = 3060ti = 4.04%
8 = 3050 mobile 4.04%
9 = 3070 =1.91%
10 = 580 =1.68%
11 = 3070 Max-q =1.57%
12 = 3060 Max-q =1.57%
13 = 2070S = 1.46%
14 =All Tesla = 1.35%
15 = 5700 =1.28%
16 = 570 = 1.23%
17 = 3050ti = 1.23%
18 = 1060 = 1.11%
19 = 3080ti 12 = 1.05%
20 = A2000 = 1.04%
21 = 3080 Max-q =1.04%
22 = 3070ti =1.01%
23 = 560 =0.98%
24 =1650S =0.93%
25 = 550 = 0.92%
26 = 5700Xt = 0.85%
27 = 6600 = 0.83%
28 = P2000 = 0.76%
29 = 1660 = 0.75%
30 = 4070ti = 0.74%
31 = 2080 = 0.73%
32 = P4000 = 0.70%
33 =1050ti =0.69%
34 = 4080 16 FE = 0.69%
35 =1080 = 0.64%
36 = A4000 = 0.64%
37 = 1070 = 0.62%
38 = 6700XT = 0.58%
39 = 3050 desktop = 0.55%
40 = 1650ti = 0.52%
41 = 1080ti = 0.48%
42 = 960 = 0.46%
43 = 6600XT = 0.45%
44 = 2080ti = 0.45%
45 = 1070ti = 0.44%
46 = Vega 64 = 0.44%
47 = P1000 = 0.43%
48 = 6800 = 0.42%
49 = 1650S = 0.40%
50 = QRTX 4000 = 0.40%
51 = A5000 = 0.39%
52 = 530 = 0.39%
53 = 5600XT = 0.36%
54 = 3090 FE = 0.35%
55 = 1660ti = 0.34%
56 = QRTX 3000 = 0.33%
57 = A4500 = 0.33%
58 = P620 = 0.33%
59 = 4090 = 0.30%
60 = 1030 = 0.30%
61 = 5500XT = 0.27%
62 = Vega 56 = 0.26%
63 = 980 = 0.25%
64 = 2060 12 = 0.25%
65 = 2080S = 0.25%
66 = 6800XT = 0.24%
67 = 520 = 0.24%
68 = QRTX 5000 = 0.24%
69 = Radeon Vll = 0.23%
70 = P6000 = 0.23%
71 = 2060S = 0.22%
72 = 6900XT = 0.22%
73 = A6000 = 0.22%
74 = 590 = 0.21%
75 = QRTX 6000 = 0.20%
76 = 5500M = 0.19%
77 = 980ti = 0.19%
78 = MX 250 = 0.19%
79 = MX 150 = 0.19%
80 = 560x = 0.19%
81 = GTX TITAN = 0.18%
82 = 3080 12 FE = 0.18%
83 = A3000 = 18%
84 = WX3200 = 0.18%
85 = 1050 = 0.17%
86 = P2200 = 0.16%
87 = 950 = 0.16%
88 = QP5000 = 0.16%
89 = 540 = 0.15%
90 = 3070 FE = 0.15%
91 = 3090ti = 0.15%
92 = 6500XT = 0.14%
93 = T600 = 0.13%
94 = 3080 10 FE = 0.13%
95 =1630 = 0.13%
96 = MX 450 = 0.13%
97 = 7900XTX = 0.12%
98 = MX 130 = 0.12%
99 = Titan X = 0.12%
100 = Pro Vega 20= 0.12%
101 = P520 = 12%
102 = 7900XTX = 0.11%
103 = T400 = 0.11%
104 = MX 350 = 0.10%
105 = MX 330 = 0.10%
106 = 580x = 0.10%
107 = 3060ti FE = 0.10%
108 = W5700 =.08%
109 = RTX 8000 = 0.08%
110 = RX 6400 = 0.08%
111 = V100 = 0.07%
112 = P1000 = 0.07%
113 = 6950XT = 0.07%
114 = WX5100 = 0.07%
115 = 6750XT = 0.06%
116 = 2080 Max-q = 0.06%
117 = 5600M = 0.06%
118 = WX7100 = 0.05%
119 = 2070 Max-q = 0.05%
120 = 6650XT = 0.05%
121 = A100 = 0.05%
122 = 2080 FE = 0.05%
123 = 3070ti FE = 0.04%
124 = 2050 = 0.04%
125 = MX 550 = 0.04%
126 = A5500 = 0.04%
127 = A770 = 0.04%
128 = 2060 Max-q = 0.04%
129 = Vega 48 = 0.04%
130 = W5700X = 0.03%
131 = T1200 = 0.03%
132 = W5500 = 0.03%
133 = Titan V = 0.03%
134 = WX9100 = 0.03%
135 =2070 FE = 0.03%
136 = 1650 Max-q = 0.03%
137 = RTX TITAN = 0.03%
138 = 4080 16 mobile = 0.03%
139 = 6850M XT = 0.03%
140 = Vega FE =0.03%
141 = 4090 mobile = 0.03%
142 = 570x = 0.02%
143 = 2080S Max-q = 0.02%
144 = 3090ti FE = 0.02%
145 = 4070 mobile = 0.02%
146 = 6650M = 0.02%
147 = 4080 16 FE = 0.02%
148 = W6600 = 0.02%
149 = T1000 = 0.02%
150 = A370M = 0.02%
151 = 6700M = 0.02%
152 = A380 = 0.02%
153 = 6600M = 0.02%
154 = MX 230 = 0.02%
155 = QGP 100 = 0.02%
156 = M125 = 0.01%
157 = 540x = 0.01%
158 = CMP 170 = 0.01%
159 = A750 = 0.01%
160 = MX 570 = 0.01%
161 = 4090 FE = 0.01%
162 = 6700S = 0.01%
163 = W6400 = 0.01%
164 = W6800 = 0.01%
165 = Pro 7 = 0.01%
166 = 6800M = 0.01%
167 = 6500M = 01%
168 = Vega ll AB = 0.01%
169 = CMP 50 = 0.01%
170 = H100 = 0.0056%
171 = W6800X DUO = 0.0045%
172 = M160 = 0.0045%
173 = M100 = 0.0045%
174 = WX 8200 = 0.0045%
175 = 2060ti mobile = 0.0045%
176 = T2000 = 0.0045%
177 = CMP 30 = 0.0045%
178 = AD A6000 = 0.0045%
179 = Mi32 = 0.0034%
180 = Mi8 0.0034%
181 = W5700X Duo = 0.0034%
182 = V340 = 0.0034%
183 = 6900Xt Liquid = 0.0022%
184 = M150 = 0.0022%
185 = CMP 90 = 0.0022%
186 = A350M = 0.0011%
187 = 6600S = 0.0011%
188 = 5700XT 5Oth = 0.0011%
189 = V620 = 0.0011%
100.00%Mike Bruzzone, Camp Marketing
You wrote "Nvidia is anticipating continued challenges in the coming quarter due to its ongoing efforts to fix some of its activities." Maybe so, but I didn't catch that in recent call or interview. They guided sequentially up this quarter for all 4 of their main business areas. The "AI hype supported by the OpenAI (i.e., ChatGPT)." is not just hype. As can be read in this WSJ piece and others, the "big guys" are adjusting their investment plans steering more in their budgets to AI.
www.wsj.com/...
Disappointing considering that's what the article was meant to be about:"Nvidia Vs. AMD: A Clear Choice"
At least that's what the title says...
Malcolm Gladwell book "OutLiers" The story of success, is a fun and insightful read.
And now they may change it to AI inside with proper pronouns.