Advanced Micro Devices Will Continue Getting Schooled by NVIDIA

Investors tend to get very greedy when betting on a turnaround, which is why shares of Advanced Micro Devices (AMD) rallied strongly after the company released better-than-expected quarterly results. Despite the chipmaker’s great quarter, Advanced Micro Devices is still in troubled waters and investors should use the rally to get out of the stock.

Rising competition

In the graphics cards segment, NVIDIA (NVDA) and Advanced Micro Devices are the two leading firms.
In 2015, NVIDIA outperformed the market, whereas Advanced Micro Devices struggled. Despite the fact that Advanced Micro Devices’ stock price surged around 50 percent after its first quarter earnings, the company still faces fierce competition from NVIDIA and Intel (INTC).

NVIDIA has shifted its focus in new markets by making efficient use of its GPU skills, and it seems to be paying off. In Q4FY16, NVIDIA’s top-line reached a record high of $1.4 billion and for the full-year 2015, a surge of 12 percent y-o-y. For the time being, Advanced Micro Devices’ Q1FY16 revenue plunged 19 percent year over year to $832 million.

NVIDIA is not only beating Advanced Micro Devices in terms of revenue, but also in terms of market share. Part of NVIDIA’s rise arrives from branching out its GPU expertise. NVIDIA’s GPUs are being used in desktop, Virtual Reality and driverless cars, whereas Advanced Micro Devices is still lagging in both of these strongly growing markets. NVIDIA’s GeForce GTX 970 and 980 GPUs account for the prominent graphics cards for computers that can support high-end Virtual Reality devices like the HTC Vive and the Oculus Rift.

At present, Virtual Reality desktop market is at its infant stage of deployment, signifying almost 1 percent of all PCs on the market, but is projected to escalate at a rapid rate in the coming few years. According to estimates, here will be around 171 million VR users around the globe, and the market size will increase to $70 billion by 2020.

Furthermore, NVIDIA is also using its graphics cards to power its all new DGX-1 supercomputer. The server will be used for different types of high-end calculations, comprising collecting data for driverless cloud from the cloud.

However, Advanced Micro Devices’ new Radeon GPUs are being used to power several VR computers, but with its distinct GPU market share far behind NVIDIA’s, the company would not make a dent in the VR market as efficiently as NVIDIA.

I have been very bearish on Advanced Micro Devices and bullish on NVIDIA. Although NVIDIA is richly valued, I think the stock will perform a lot better in the long run. While traders can still benefit more from Advanced Micro Devices, I think NVIDIA is a perfect growth stock for long-term investors.
Published on May 5, 2016
By Akshansh Gandhi

Copyrighted 2020. Content published with author's permission.

Posted in ...