Nvidia Corp. and Advanced Micro Devices Inc. (AMD) are two behemoths within the semiconductor industry, each deeply entrenched in the burgeoning realm of artificial intelligence (AI). Despite their shared thematic focus, their recent trajectories in the stock market couldn’t be more contrasting. Nvidia’s shares have soared by an impressive 29% over the past three months, propelling the company’s market capitalization to briefly surpass the remarkable milestone of $3 trillion. In stark contrast, AMD has struggled, with its stock witnessing a decline of 21% during the same period.
The primary driver behind Nvidia’s stellar performance lies in its dominant position in the AI market. Leveraging its advanced AI accelerator technologies, Nvidia has adeptly capitalized on the surging demand for AI-related solutions. This strategic positioning has effectively insulated Nvidia from some of the cyclical pressures plaguing other players in the semiconductor space.
Conversely, AMD’s recent challenges stem from its comparatively lower profile in the AI domain. While the company is undoubtedly a significant player in the semiconductor industry, it has not garnered the same level of attention or recognition in the AI sector as Nvidia. However, Melius Research analyst Ben Reitzes suggests that AMD’s potential merits greater recognition from investors.
Reitzes argues that AMD doesn’t necessarily need to directly compete with Nvidia to thrive. Despite representing only 9% of Nvidia’s market capitalization, AMD possesses substantial earnings-per-share (EPS) potential, with the capability to exceed $8 within the next few years. Thus, Reitzes advocates for investors to reevaluate AMD’s prospects, particularly considering its underperformance relative to Nvidia.
One promising development for AMD is the recent endorsement from Meta Platforms Inc. (formerly Facebook) regarding the advantages of AMD’s MI300X AI accelerator. Reitzes believes that Meta’s endorsement could serve as a significant catalyst, potentially bolstering AMD’s performance in the latter half of the year.
Furthermore, AMD’s Strix Point AI PC processors have garnered praise for their impressive specifications, suggesting potential upside in client demand in the coming quarters.
Reitzes recently engaged with AMD’s management and emerged with a positive outlook. He contends that AMD stands to benefit from a potential market rebound, especially if it can cultivate greater confidence among investors and customers, possibly by fostering closer alignment with buy-rated Arista Networks in the networking sector.
While AMD’s shares initially experienced an uptick earlier in the trading session, they later retraced some of their gains. Nevertheless, Reitzes remains bullish on AMD’s long-term prospects, envisioning the company as poised for robust growth, particularly as it continues to expand its footprint in the AI and semiconductor landscapes.