Is AMD a Better Investment Than NVIDIA?

Both NVIDIA (NVDA) and AMD (AMD) operate in the same sector, but the companies are widely different from each other. NVIDIA has a dominating presence in the graphics cards market and has established a leading position; on the other hand, AMD has consistently underperformed and has been outwitted by NVIDIA on every occasion.

When it comes to efficiency, there is no competition between the two companies, as NVIDIA is the outright winner. However, I recently read an article on Seeking Alpha claiming that AMD is a better investment than NVIDIA because of the former’s beaten-down valuation.
The author of the article argued that NVIDIA is overvalued and doesn’t have much upside potential, making AMD a better investment. In this article, I will explain why that hypothesis is wrong.

In 2015, Major graphics cards manufacturers NVIDIA and AMD together sold around 50 million units. Both the companies generate fundamentally all revenue from their chips, a major portion of which is used in traditional PCs. AMD lost almost every battle against NVIDIA and Intel last year, but the company is putting more efforts into regaining its market share this year.

AMD strives in various different markets, proposing several kinds of graphics and computer processors, and some SoCs. On the other hand, NVIDIA holds a leading position in graphics cards segment, though its Tegra line of SoCs generates a significant amount of revenue.

AMD holds the second position in the segment it deals in. In the case of x86 processors, the company holds only 20 percent market share, whereas, the remaining 80 percent belong to its foremost rival Intel. And roughly the same is the case in terms of graphical processor, as AMD’s graphics cards were used in only 24 percent of the graphics cards sold in 2015, while the remaining 76 percent belonged to NVIDIA.

The gap between NVIDIA and AMD is widening mainly because PC gamers and graphics experts are NVIDIA’s key market, as those groups buy the majority of NVIDIA’s GPUs. Apart from this, NVIDIA’s chips are also used in data centers, and most recently, its Tegra chips are widely being used in automobiles. NVIDIA’s chips are also being used in Android tablets and Chromebooks, to a minor extent.

In 2015, AMD reported sales of under $4 line, and shared an operating loss of $481 million, whereas NVIDIA was profitable and generated operating income of $252 million.

While it is true that NVIDIA is much more expensive than AMD, it deserves the premium. NVIDIA’s push into Virtual Reality and self-driving vehicles offers investors a lot more advantage. While I am not saying that shares of AMD can’t move higher, I think NVIDIA is a much better alternative no matter how you look at it.
Published on Apr 6, 2016
By Prudent Investor

Copyrighted 2020. Content published with author's permission.

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