AMD vs. Nvidia: The Battle for AI Chip Dominance in 2025

Broadcom vs. Advanced Micro Devices: Wall Street Sees Much Faster Earnings Growth for One, But Thinks the Other Stock Will Outperform | The Motley Fool

Nvidia has been the undisputed winner of the artificial intelligence trade, as the leader in creating chips and network infrastructure that power AI solutions. However, there are plenty of competitors trying to get in on the action. After all, the potential market for AI is expected to be so big that just a small connection to the market can send a stock soaring. Two stocks that have been clumped in with the AI trade and that make chips and other AI infrastructure are Broadcom (AVGO -1.17%) and Advanced Micro Devices (AMD 1.15%). Broadcom has performed well, with its stock up nearly 86% over the last year. Meanwhile, AMD has struggled, with its stock down nearly 36%. Wall Street analysts currently expect one of these companies to grow earnings faster in 2025, but the other to outperform in stock price appreciation over the next 12 to 18 months. Let's take a look. While Nvidia has made its name by dominating the broad chip market, Broadcom has focused on creating custom chips for some of the large tech players like Alphabet, Amazon, and Microsoft. After the emergence of DeepSeek, a Chinese company that claims to have developed an AI chatbot at a fraction of the cost of competitors', many think custom chips will be the path forward, which bodes well for Broadcom. Others also suspect Broadcom has locked up new customers like OpenAI, the creator of ChatGPT. The company has now topped a $1 trillion market capitalization For its fiscal year ended in November, Broadcom only reported $1.27 of earnings per share, but most of this was due to the amortization of intangibles related to the company's acquisition of VMWare in late 2023. On an operating basis, diluted earnings came in at $4.86. Wall Street analysts on average expect the company to grow diluted earnings to $4.01 in fiscal 2025 and generate operating diluted earnings of $6.35, according to data provided by Visible Alpha. On the company's last earnings call, management expressed bullishness on the custom chip market and thinks the company will play a role as hyper-scalers roll out their own custom AI accelerators or chips. Broadcom cited its three hyperscaler customers and said that together, their journeys represent an AI serviceable addressable market (SAM) for custom chips and network in the $60 billion to $90 billion range in fiscal 2027. Broadcom's stock has performed well, and analysts think it is fairly valued at this point. While no analysts are saying to sell, 27 have issued research reports on the company over the last three months, according to TipRanks. The average price target implies very minimal upside. Analysts don't seem bearish on the company at all, so it may be more of a valuation call to let the stock catch its breath. Broadcom currently trades at close to 37 times forward earnings. Being in the AI game is a big deal, which is why investors are often discussing Advanced Micro Devices. However, AMD's main problem is that it has to compete against Nvidia, a company generating gross profit margins in the mid-70s percentile and demonstrating extreme pricing power. According to experts, AMD manufactures cheaper chips than Nvidia, but they're only about 80% as powerful. Still, Wall Street analysts currently expect earnings to grow nicely this year -- from $1.00 in 2024 to $2.47 in 2025, according to Visible Alpha. On an operating basis, analysts expect earnings to grow from $3.31 to $4.62. However, we'll see how long these last after AMD's recent earnings disappointed the market. The company beat on estimates and even delivered revenue guidance ahead of consensus. But revenue in the company's data center segment came in lighter than expected, which disappointed investors given how much the market is growing. After earnings, some analysts expressed concern about the outlook for growth in AMD's AI business. Despite weaker data center numbers, analysts are still largely bullish on the stock. A total of 36 analysts have issued research reports on the company over the past three months, according to TipRanks. Of these, 24 analysts rate the stock a buy, 11 say to hold, and only one says to sell. The average price target suggests nearly 33% upside from current levels (as of Feb. 11). The discrepancy between AMD and Broadcom looks to be based on valuation. While Broadcom trades at 37 times forward earnings, AMD trades at around 23 times. In the near term, AMD may have more room to run on any change in sentiment. However, Broadcom seems to be better positioned to take advantage of current trends in the AI market.

Better Artificial Intelligence (AI) Buy for 2025: AMD or Nvidia Stock? | The Motley Fool

Nvidia (NVDA 2.63%) has essentially owned the data center computing market, which is a huge deal, considering the hundreds of billions of dollars being spent on artificial intelligence (AI) infrastructure. Nvidia is one of the primary benefactors of this investment, although some of its competitors, like AMD (AMD 1.15%), are also benefiting. However, the lead that Nvidia has surmounted looks unassailable, but all it takes is one innovation, and AMD could be neck and neck with Nvidia. So, which of these two is the better AI stock for 2025? Nvidia's GPUs and software have become the industry standard in data centers. While AMD's GPUs look like they can compete on paper, Nvidia's software, CUDA, sets it apart. This software allows GPUs to process multiple calculations simultaneously and handle the sheer computing tasks that AI computing requires. Because the industry has essentially adopted CUDA software versus AMD's ROCm, it's unlikely that AMD will ever be able to surmount Nvidia's lead in the data center race. The switching costs of moving from one supplier to another when the infrastructure is already set up for one is a massive consideration and is the primary hurdle for anyone switching. Nvidia's lead over AMD can be seen in both of their financials. Each has a data center division, and Nvidia's lead is quite impressive. In Q4 2024, AMD's data center revenue was $3.9 billion, up 69% year over year. Nvidia hasn't reported its Q4 results yet, as its financial calendar is shifted by one month. As a result, using AMD's Q3 results provides a better comparison. In Q3, AMD's data center revenue was $3.5 billion, up 122% year over year. These are impressive results by themselves, yet pale in comparison to Nvidia's. In Q3 FY 2025 (ending Oct. 27), Nvidia's data center revenue was $30.8 billion, up 112% year over year. That indicates Nvidia's data center business is around 10 times the size of AMD's, which is a massive lead. We'll learn more about Nvidia's Q4 results when it reports on Feb. 26, but with all the talk from big tech companies about AI spending, it's likely to report great numbers. Nvidia has built a massive moat with huge switching costs, which essentially blocks AMD from taking a meaningful amount of its data center business. However, if AMD is substantially cheaper as a stock, the discount could be enough of a reason to invest in AMD, as its data center business is still growing strongly, being much smaller than Nvidia. Because both companies are fully profitable, using an earnings-based metric like the price-to-earnings (P/E) ratio makes sense. From this perspective, AMD's stock looks far more expensive than Nvidia's, which it is. However, both companies are undergoing strong growth, and AMD's profit picture is set to improve throughout 2025, so using a forward P/E ratio is also a good idea. From this perspective, AMD is cheaper than Nvidia. However, the discrepancy between these two valuation levels can largely be attributed to the company-wide growth rate. Considering that Nvidia is expected to grow revenue by 52% in FY 2026 (ending January 2026) and AMD is expected to grow at a 24% pace, this difference seems reasonable. Nvidia is growing faster and dominating the most important computing market right now. While AMD is still a fine company, I don't think there's any reason to own AMD over Nvidia. Best-in-class stocks usually outperform their peers by a wide margin, especially when they start from a similar valuation point.

Buying This Artificial Intelligence (AI) Chip Stock Is a No-Brainer After This Development | The Motley Fool

Advanced Micro Devices (AMD 0.56%) stock fell following the release of the company's fourth-quarter 2024 results on Feb. 4, and a closer look at the company's quarterly performance and outlook indicates that investors may have overreacted. AMD not only delivered impressive growth and beat Wall Street's expectations on both revenue and earnings, but its guidance for the current quarter also exceeded consensus estimates. However, the stock was punished and fell 6% the following day as AMD's data center revenue was not up to the mark. Let's see why AMD investors pressed the panic button. AMD has been playing second fiddle to Nvidia in the market for graphics processing units (GPUs) deployed in data centers for tackling artificial intelligence (AI) workloads. Investors were hoping that the chipmaker would gain some ground in this market, but its data center revenue of $3.9 billion for the quarter was lower than the consensus estimate of $4.15 billion. What added to the negativity was AMD's forecast of a 7% sequential decline in the data center revenue for the current quarter. Investors, however, seem to be missing the bigger picture. AMD's data center revenue reached record levels last quarter, increasing 69% from the year-ago period thanks to the growing sales of its AI data center accelerators as well as server processors. The full-year data center revenue also reached a record level of $12.6 billion, which was nearly double the year-ago period. Also, AMD points out that its data center revenue in the first half of 2025 will be similar to what it generated from this segment in the second half of 2024. A closer look at CEO Lisa Su's comments on the earnings conference call suggests that it could witness an acceleration in the second half. "We're continuing to bring on new customers. Clearly, we are going through a little bit of a product transition time frame in the first half of the year," she said. The product transition that Su is referring to is the faster deployment of its next-generation MI350 AI graphics cards. AMD will start sampling its MI350 chips in the current quarter, and it plans to start shipments by the middle of the year. AMD earlier planned to bring out the MI350 series in the second half of 2025. However, positive customer feedback and demand have encouraged AMD to pull up the timeline. The company further points out that its data center GPU revenue landed at more than $5 billion in 2024. Though the company didn't give a concrete number for 2025, it expects data center revenue to "grow strong double digits certainly." Also, Su sees the data center business "growing to tens of billions, as we go through the next couple of years." So, AMD is confident that its data center business could get back on track once again and grow substantially in the long run. Meanwhile, investors should not ignore the outstanding growth that AMD is witnessing in another key segment. AMD's client segment, which includes sales of processors used in desktops and notebooks, surged an impressive 58% year over year in the previous quarter to $2.3 billion. That was much better than the 1.8% increase in personal computer (PC) shipments in the fourth quarter of 2024, suggesting that AMD's market share gains in PC CPUs (central processing units) are continuing. The good part is that AMD believes it will continue to gain share in the PC CPU market this year. The company estimates a mid-single-digit increase in PC shipments in 2025. Management added on the earnings call that it "can grow client segment revenue well ahead of the market" thanks to its broad portfolio of chips and strong design win momentum. In all, both of AMD's key business segments are likely to enjoy healthy growth this year. This is evident from the company's guidance for Q1. The chipmaker expects its top line to increase by 30% year over year in Q1 to $7.1 billion at the midpoint of its guidance range. That points toward an improvement over the 24% year-over-year increase in its revenue in Q4 2024. Additionally, AMD expects its non-GAAP (adjusted) gross margin in Q1 to jump by 2 percentage points from the year-ago period. That should ideally translate into outstanding bottom-line growth following the 42% year-over-year increase in its earnings last quarter. So, AMD's growth rate remains impressive despite the short-term hiccup that it sees in the data center business owing to the transition to its next-generation chip. Analysts are expecting AMD to deliver 43% earnings growth in 2025. That would be an improvement over the 25% jump it clocked last year. However, the uptick in the company's data center business in the second half of the year, along with the strong momentum of the PC business, could pave the way for stronger earnings growth. That's why investors can consider buying this semiconductor stock following its latest drop. It is trading at an attractive 23 times forward earnings -- a discount to the tech-laden Nasdaq-100 index's forward earnings multiple of 28 -- and is clocking robust top and bottom-line growth that could help it regain its mojo and head higher in the future.

AMD Is a Top Artificial Intelligence (AI) Stock to Buy After Its Recent Earnings

Jose Najarro has positions in Advanced Micro Devices and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy. Jose Najarro is an affiliate of The Motley Fool and may be compensated for promoting its services. If you choose to subscribe through their link they will earn some extra money that supports their channel. Their opinions remain their own and are unaffected by The Motley Fool.

Is AMD Stock a Buy? | The Motley Fool

Semiconductor giant Advanced Micro Devices (AMD 0.56%) was among the stocks to see shares surge thanks to the rise of artificial intelligence (AI) over the past couple of years. But so far, 2025 is a different story. The company's stock plunged to a 52-week low of $106.50 on Feb. 5, the day after it released earnings results for its fiscal fourth quarter, ended Dec. 28. This is a steep reversal from the 52-week high of $227.30 AMD shares reached last March. Does this price decline signal a buy opportunity, or did its earnings results reveal reasons to avoid the stock? Let's dig into the company to find out whether AMD is a worthwhile long-term investment. AMD stock's fall after its Q4 earnings report was due in part to its all-important data center revenue failing to meet Wall Street's expectations. AI systems are built in data centers, so this area is an indicator of AMD's success in the AI market. The company's data center segment delivered record revenue of $3.9 billion in Q4, a 69% increase over the prior year. This massive year-over-year sales growth wasn't good enough for Wall Street, which was expecting $4.2 billion in data center income. In addition, warning bells went off on Wall Street after AMD management forecast Q1 revenue to drop around 7% to $7.1 billion from Q4's $7.7 billion due to seasonality. The quarter-over-quarter drop was interpreted as a sign AMD's AI sales are weakening. The reality is AMD's $7.1 billion Q1 forecast is almost a 30% increase over 2024's first-quarter sales of $5.5 billion. It's also worth noting this $5.5 billion represented an 11% quarter-over-quarter decline, so the 7% drop forecast for 2025's Q1 isn't unusual. In terms of fears that AMD's AI business is weakening, CEO Lisa Su's perspective is that AI sales are only going up. She stated, "Without guiding for a specific number in 2025, one of the comments that we made is we see this business growing to tens of billions, as we go through the next couple of years." Su's confidence in AMD's future is understandable given the success the company has achieved to date. For instance, in 2023, data center sales were about 30% of the $22.7 billion in total revenue produced by AMD. In 2024, the data center business expanded to nearly 50% of overall sales as this segment grew 94% year over year to a record $12.6 billion. This helped AMD reach a record $25.8 billion in 2024 full-year revenue. AMD's AI-related sales success led to solid financials. Its gross margin rose to 51% in Q4 compared to 47% in the prior year, indicating improved profitability in its core operations. The company's Q4 balance sheet was stellar with $69.2 billion in total assets compared to total liabilities of $11.7 billion. AMD's prosperity led management to double down on its AI strategy. It acquired Silo AI last year to help customers build AI systems using AMD hardware. It's also acquiring ZT Systems this year to assist customers with implementing AMD products on IT infrastructure. AMD's focus on its data center business, and assisting customers to implement AI, is a compelling strategy. But can AI demand continue to feed AMD's fortunes over the long run? Forecasts estimate the AI market will grow from $244 billion in 2025 to $827 billion by 2030. The rise of AI is a secular trend expected to transform the computing industry as increasingly powerful computers capable of supporting AI become widespread. The AI sector's expansion serves as a tailwind, helping AMD to achieve ongoing sales in its data center products. Its AI success to date, solid financials, and future prospects combine to make AMD stock a worthwhile long-term investment. This brings me to whether now is a good time to buy AMD shares, given the stock isn't far from its 52-week low at the time of writing. Let's consider AMD's stock valuation using the price-to-earnings (P/E) ratio. This metric tells you how much investors are willing to pay for a dollar's worth of earnings. Because of its share price decline, AMD's P/E multiple looks more reasonable now than it has been over the past year. That said, the stock is still not a bargain. For comparison, competitor Nvidia's shares are at a P/E ratio of 53 versus AMD at over 100. So while it's a better time to buy AMD stock than before, you might want to wait for a further price drop. Alternatively, you can adopt a dollar-cost averaging strategy, and buy a few shares now. This approach involves building your position in AMD over time by purchasing equal dollar amounts of its stock at regular intervals. Dollar-cost averaging takes some of the guesswork out of whether AMD shares will go up or down from its current price, while allowing you to own a piece of a growing, well-run semiconductor company.

Should You Forget AMD and Buy 2 Tech Stocks Instead? | The Motley Fool

Broadcom and TSMC might be more balanced chipmaking investments. AMD was once a hot chipmaker, but it lost nearly 40% of its value over the past 12 months. It lost its momentum as its sluggish sales of gaming chips partly offset its stronger sales of PC and data center chips, and investors started to question the long-term growth potential of its closely watched artificial intelligence (AI) accelerators. AMD's data center revenue still surged 69% year over year in the fourth quarter of 2024, but that marked a significant slowdown from its 122% growth in the third quarter and 80% growth in the second quarter. That deceleration dampened the bullish hopes that AMD would loosen Nvidia's iron grip on the AI market with its cheaper AI accelerators. In the PC market, AMD's share of the discrete GPU market also shrank against Nvidia's. For 2025, analysts still expect AMD's revenue and adjusted earnings per share (EPS) to grow 24% and 43%, respectively. Those seem like robust growth rates for a stock that trades at just 23 times forward earnings. However, those estimates might drift lower if its data center business continues to cool off and it falls further behind Nvidia in the gaming market. AMD isn't doomed yet, but investors might consider investing in more balanced and diversified chipmakers that don't directly compete against Nvidia. Two of those stocks are Broadcom (AVGO 0.56%) and Taiwan Semiconductor Manufacturing (TSM -1.13%). Broadcom operates two main businesses: its chipmaking division, which sells a wide range of chips for the mobile, data center, networking, wireless, and storage markets, and its infrastructure software division, which provides enterprise software, security services, and cloud-based services. It significantly expanded both businesses through some big acquisitions (including Vmware in 2023) over the past decade. Broadcom's chip and software sales are cyclical, but the growth of the AI market is driving more data centers to ramp up their purchases of its networking chips and custom XPU accelerators. In fiscal 2024 (which ended last November), Broadcom's sales of AI-oriented chips surged 220% to $12.2 billion and accounted for 41% of its semiconductor revenue. The rapid expansion of that business, along with the stronger growth of its non-AI chip and software businesses in a warmer macro environment, should drive Broadcom's revenue and profits higher over the next few years. From fiscal 2024 to fiscal 2027, analysts expect Broadcom's revenue to grow at a compound annual growth rate (CAGR) of 17% as its EPS rises at a CAGR of 75%. Its stock might seem pricier than AMD's at 43 times next year's earnings, but its broader diversification and more balanced growth justify that higher valuation. Taiwan Semiconductor Manufacturing, also known as TSMC, is the world's largest and most technologically advanced contract chipmaker. All of the world's leading fabless chipmakers, including AMD and Nvidia, outsource the production of their smallest, densest, and most power-efficient chips to TSMC's fabs. Nvidia's soaring sales of AI GPUs have been driving the growth of TSMC's high-performance computing (HPC) market. In 2024, its HPC revenue surged 58% and accounted for 51% of its top line. Its smartphone chip revenue, which accounted for another 35% of its top line, also rose 23% for the year as new handset sales warmed up again. This year, TSMC aims to widen its lead against its two closest competitors, Intel (NASDAQ: INTC) and Samsung, by ramping up its production of its smallest 2 nm chips. It also continues to expand its overseas plants in the U.S., Germany, and Japan to offset the geopolitical risks for its most advanced foundries in Taiwan. From 2024 to 2026, analysts expect TSMC's revenue and EPS to grow at a CAGR of 23% and 26%, respectively, as its core markets expand again. Its stock still looks cheap at 19 times forward earnings, but that's probably because its valuations are being squeezed by some near-term concerns regarding the tighter export curbs for AI chips, higher tariffs, and the escalating tensions between Taiwan and China. If those headwinds wane, it should command a higher valuation and rally even higher.