Advanced Micro Devices (NASDAQ:AMD) continues to play second fiddle to Nvidia (NASDAQ:NVDA) in the AI chip market — a respectable yet frustrating position for some investors. While Nvidia capitalizes on the AI revolution to reach unprecedented heights, AMD struggles to close the gap, lagging behind its dominant rival.
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The divergence in fortunes is stark: Nvidia’s stock has soared a whopping 180% year-to-date, while AMD’s shares have slipped by 7%.
Still, it was not all doom and gloom for AMD this year. The company’s chips are playing a significant role in powering Meta’s open-source AI models, a move that could attract cost-conscious customers seeking alternatives to Nvidia’s premium offerings.
Could a shift from training AI models to inferencing – where AI-trained models are deployed – signal a coming bonanza for AMD?
Not according to a top investor known by the pseudonym Nexus Research, who believes that history will repeat itself in the ongoing competition between Nvidia and AMD.
“Nvidia is strongly positioned to sustain a dominant market share as we shift from the training to the inferencing phase,” asserts the 5-star investor, who sits in the top 5% of TipRanks’ stock pros.
Nexus argues that AMD faces an uphill battle, as Nvidia’s existing customers can ultimately use the same chips for inferencing workloads. Moreover, the investor highlights that Nvidia’s compatibility across GPU generations makes it easier for clients to remain with the undisputed market leader.
“The company is well-positioned to sustain market dominance throughout the inference phase, narrowing the window for AMD’s technology to gain market prominence,” the investor added.
Still, AMD investors have reasons for cautious optimism. Nexus notes that AMD’s emphasis on open-source solutions could pay off if it gains traction among customers seeking more affordable alternatives.
Valuation also paints a compelling picture for AMD. Nexus highlights its Forward PEG ratio of 0.97x, signaling a relatively attractive price point. That being said, AMD has some good company among these more cheaply-valued AI options, notes Nexus, including Nvidia, whose Forward PEG is 1.20x.
“With Nvidia trading at a relatively cheap valuation as well, at 1.20x Forward PEG, it certainly undermines the appeal of buying AMD over the market leader,” observes Nexus, who rates AMD shares a Hold (i.e. Neutral), while assigning NVDA a Buy rating. (To watch Nexus Research’s track record, click here)
We’ll have to agree to disagree appears to be the sentiment on Wall Street. AMD shares boast a Strong Buy consensus rating based on 23 Buy recommendations and 7 Holds. The average price target of $185.46 suggests a 35% upside potential in the year ahead. (See AMD stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
