In the past 12 months, chip stocks, particularly Nvidia (NVDA) and Advanced Micro Devices (AMD), have surged, riding high on the artificial intelligence (AI) trend. NVDA stock more than tripled in 2023, while AMD stock gained 127.6%, showcasing a remarkable performance.
However, a recent analyst note has sounded the alarm for NVDA, warning of vulnerability as the AI euphoria enters a phase of so-called “trough of disillusionment.” With tech giants experiencing a shaky start to 2024, the debate now centers on which semiconductor stock offers superior growth potential for investors.
The Bright Prospects for NVDA Stock
Nvidia is well-positioned to capitalize on the rise of generative AI in the coming decade. In fiscal Q3 of 2024, Nvidia witnessed a staggering 206% year-over-year surge in sales, primarily driven by its data center segment.1
Analysts project a monumental 118.4% sales increase to $59 billion in fiscal 2024, followed by a 56.5% growth to $92.3 billion in fiscal 2025. Additionally, adjusted earnings per share are expected to swell by 102.5% annually over the next five years, making NVDA stock appear attractively valued at 24.2 times forward earnings.2
Market intelligence firm Gartner forecasts a remarkable spike in AI chip sales to reach $67 billion in 2024, with Nvidia seizing almost 80% of the market share, potentially translating to revenue of around $54 billion in the next 12 months.3
Out of the 35 analysts covering NVDA stock, the consensus is overwhelmingly bullish, with 30 recommending a “strong buy,” three suggesting a “moderate buy,” and two advocating a “hold.” The average target price for NVDA is $653, signifying an upside potential of 37% from current levels.4
The Case for AMD Stock
AMD, valued at $221.7 billion by market cap, has been one of the standout performers in the tech sector over the past decade, surging a remarkable 3,710% since January 2014. CEO Lisa Su envisions the data center AI chip segment growing from $45 billion in 2023 to a staggering $400 billion in 2027, providing significant room for top-line growth in the next four years.
Besides AI, AMD is well-positioned to reap the benefits of its legacy businesses, such as graphics and enterprise processors. However, the company faced its share of challenges, including slowing PC sales, increased costs, elevated interest rates, lower enterprise spending, and export restrictions in China imposed by the U.S. government.5
Despite these headwinds, analysts expect AMD’s revenue to rebound, with a forecasted 16.6% increase to $26.4 billion in 2024 following a 4% decline to $22.65 billion in 2023. Adjusted earnings per share are expected to expand from $2.65 in 2023 to $3.73 in 2024, albeit at a higher forward earnings multiple of 39.5 compared to NVDA, reflecting a slower growth trajectory.6
Of the 29 analysts covering AMD stock, 23 recommend a “strong buy,” one advises a “moderate buy,” and five suggest a “hold.” Despite this, the average target price for AMD is $135.07, marginally below its current levels, indicating that Wall Street foresees greater upside potential for NVDA compared to AMD over the next year.7
