Estimated read time: 3 minutes
Publication date: 26th May 2022 11:06 GMT+1
The last decade has seen an astonishing rise in the share prices of semiconductor companies such as Advanced Micro Devices (NASDAQ: AMD) and NVIDIA (NASDAQ: NVDA). Since May 2012, NVDA stock has surged a staggering 5,860% while AMD stock has gained 1,370%. However, the ongoing sell-off has also dragged these stocks lower in the last few months.
For example, AMD is trading 44% below all-time highs while NVIDIA stock is down 49% from record prices. Let’s see which beaten-down semiconductor stock between the two should be part of your shopping list right now.
Advanced Micro Devices managed to stage an impressive turnaround over the last few years. Its Radeon graphics card has allowed the company to gain traction against peers such as NVIDIA. In the last quarter, the average selling prices of these graphics cards continued to drive revenue higher for AMD.
Further, server processors such as EPYC and Ryzen PC enabled AMD to gain market share over Intel (NASDAQ: INTC) as well, both in the mobile and server businesses. The recent acquisition of supercomputing giant Xilinx should help AMD expand into the data center vertical as well. AMD also disclosed it might acquire Pensando which is a distributed services platform operating in the edge computing space.
In Q1 of 2022, AMD reported revenue of $5.9 billion, an increase of 71% year over year. Its non-GAAP net income more than doubled to $1.6 billion on the back of widening gross margins and robust operating leverage. The company expects sales to rise by 60% year over year to $26.3 billion in 2022.
AMD stock is valued at $150 billion by market cap trading at a forward price to sales multiple of 5.7x and a price to earnings multiple of 21x which is quite reasonable. It ended Q1 with $6.53 billion in cash and $2.16 billion in debt. Further, in the last 12-months, AMD generated $3.3 billion in levered free cash flow providing the company with enough liquidity to reduce debt or grow via acquisitions.
Valued at $423 billion by market cap, NVIDIA is one of the largest companies in the world. In Q1 of fiscal 2023 (ended in April), NVIDIA reported revenue of $8.29 billion with adjusted earnings of $1.36 per share. Comparatively, analysts forecast NVIDIA to report revenue of $8.12 billion and earnings of $1.36 per share in the April quarter.
NVIDIA forecast sales of $8.1 billion in fiscal Q2 compared to estimates of $8.45 billion. The less than impressive guidance has dragged NVDA stock lower in early-market trading on May 26.
NVIDIA stated it delivered record results in Q1 across verticals such as Data Center and Gaming despite a challenging macro-environment. Several companies across industries are now looking to leverage artificial intelligence capabilities which should lead to the widespread adoption of NVIDIA’s AI computing products.
Data Center is now NVIDIA’s largest business and the company is gearing up to launch new GPU, CPU, DPU, and robotics processors in the second half of fiscal 2023. These graphics are expected to advance companies working in AI, graphics, autonomous vehicles, robotics, and omniverse verticals.
Analysts tracking NVDA stock expect sales to rise by 29% to $34.75 billion in fiscal 2023 while earnings are forecast to expand by 26% to $5.61 per share. NVDA stock is valued at 12.2 times forward sales and 30 times forward earnings which is quite steep.
AMD’s lower valuation and solid earnings expansion in the next 12-months make it a better buy right now compared to NVIDIA.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
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