Semiconductor Giants Wolfspeed and Nvidia Compete in AI-Driven Market

Better Artificial Intelligence Stock: Wolfspeed vs. AMD | The Motley Fool

Seemingly overnight, artificial intelligence became a major growth industry. The global AI market was valued at $93 billion in 2020, and now, it's expected to hit $244 billion in 2025. The AI boom is driving demand for semiconductors, which are crucial components in AI systems. These components provide efficient energy use for the data centers housing AI tech and computing power for AI to execute tasks. This makes investing in semiconductor stocks a great way to capitalize on the AI market's expansion. Two compelling semiconductor companies to consider are Wolfspeed (WOLF 0.57%) and Advanced Micro Devices (AMD 0.28%). Wolfspeed is a leader in silicon carbide (SiC) products used in power applications. AMD produces advanced semiconductor chips for AI. Both have seen share-price declines this year as of December 16, creating a potential buying opportunity. Let's look at each to evaluate whether one is a superior AI investment for the long haul. AI systems take millions of dollars to operate, and part of that is the energy cost to run the many machines used by AI. That's where Wolfspeed's SiC products come in. SiC offers greater efficiency and reduced system size and weight over comparable silicon power devices. As the AI market expands in the coming years, and the need for more energy grows with it, demand for silicon carbide products is expected to increase. Wolfspeed anticipates this SiC market growth will eventually deliver $3 billion in annual sales to the company. That's a dramatic increase from the $807.2 million made in its 2024 fiscal year, ended June 30. To meet the anticipated demand, Wolfspeed is building up its SiC manufacturing capabilities, primarily in its Mohawk Valley fabrication facilities in New York. This fab opened in 2022 and is ramping up its revenue contribution to the company. In Wolfspeed's 2025 fiscal first quarter, ended Sept. 29, the Mohawk Valley fab contributed $49 million to the company's $194.7 million in revenue. This is up from just $4 million a year ago. However, Wolfspeed's ramp up efforts are proving expensive. The company made Q1 sales of $194.7 million, but its cost of revenue was $230.9 million. This led to a Q1 net loss of $282.2 million. Wolfspeed is taking steps to lower its capital expenditures (capex). In its 2024 fiscal year, ended June 30, Wolfspeed's capex was $2.1 billion, but it's targeting a 43% reduction in fiscal 2025. Adding to its challenges, the company's CEO resigned in November. AMD sees its sales flourishing for years, "driven by the nearly insatiable demand for more compute," according to CEO Lisa Su. She is referring to how AI is ushering in an era where computer processing power must continuously increase. AMD specializes in accelerated computing to achieve this power boost. Accelerated computing uses dedicated hardware to perform intensive computer tasks, such as the data crunching needed for AI. AMD sells components tailored for accelerated computing, such as graphics processing units (GPUs) and accelerators. These components enable AI systems to perform quickly and effectively. As a result, the company saw sales explode in its data center business. AMD's data center revenue rose 122% year over year to a record $3.5 billion in its fiscal Q3, ended Sept. 28. This helped the company grow total Q3 sales by 18% year over year to $6.8 billion, while net income increased 158% to $771 million. However, gaming-segment sales, once a substantial contributor to revenue, were down 69% year over year to $462 million. This decline offset some of the gains AMD achieved in its data center division. In weighing whether to buy Wolfspeed or AMD, one factor to note is the threat of impending U.S. government tariffs and export restrictions on semiconductor products. These government actions could impact sales for semiconductor companies. That's adding some downward pressure on the price of semiconductor stocks. Even so, Wolfspeed and AMD's in-demand technologies can continue to deliver business growth thanks to the secular trend of AI. Over the long run, their cutting-edge technology position the pair to see shares bounce back from recent stock-price declines. Another key consideration is stock valuation. To assess this, here's a chart of Wolfspeed and AMD's price-to-sales (P/S) ratio, a metric measuring how much investors are willing to pay for every dollar of sales. The chart reveals Wolfspeed's P/S multiple is lower than AMD's and in fact is the lowest it's been in years. This suggests the SiC leader's stock is the better value compared to AMD. That said, Wolfspeed's business is facing significant headwinds, such as its substantial costs, lack of profitability, and CEO resignation. Therefore, only investors with a high risk tolerance should consider buying Wolfspeed shares. For that reason, between these two semiconductor giants, AMD wins out as the better AI stock to invest in for the long term.

Better Semiconductor Stock: Wolfspeed vs. Nvidia | The Motley Fool

Sales in the semiconductor industry are surging thanks to the secular trends of artificial intelligence (AI) and electric vehicles (EVs). The semiconductor market is forecast to reach more than $600 billion in 2024, and rise to $1 trillion by 2030, making investments in chip companies a good way to capitalize on this growth. Two semiconductor industry leaders to consider are Wolfspeed (WOLF 0.57%) and Nvidia (NVDA 3.08%). The former commands over 50% market share in the silicon carbide (SiC) wafer sector, while the latter captured headlines as its stock soared over 170% in 2024, through the week ending Dec. 13, thanks to its leadership in AI semiconductors. Both offer innovative technologies that make them attractive investments. Let's examine Wolfspeed and Nvidia to help you assess which is the better semiconductor stock for the long haul. What makes Wolfspeed a compelling investment is its focus on silicon carbide (SiC). The company developed the first commercial SiC wafers in 1991. They offer many advantages over the silicon widely used in the semiconductor industry today, particularly for EVs. Silicon carbide enables EVs to travel longer distances and reduce charging time. Wolfspeed believes its SiC sales will eventually grow to $3 billion in annual revenue as the EV market expands. For comparison, in the company's 2024 fiscal year, ended June 30, sales were $807.2 million. SiC's potential sounds promising, but the company has several hurdles to overcome first. It is trying to ramp up production at its SiC manufacturing plants, but the costs are high. For example, it generated sales of $194.7 million in its fiscal first quarter, ended Sept. 29, but the cost of revenue was $230.9 million. As a result, gross profit of $77.4 million at the end of fiscal 2024 turned into a loss of $36.2 million in the first quarter. It's also facing a cyclical downturn, causing softness in sales. Its $194.7 million in first-quarter revenue was down from $197.4 million in the previous year. The drop in sales, lack of profitability, and high production costs contributed to the resignation of Wolfspeed's CEO in November. With the rise of AI, Nvidia has turned into a semiconductor powerhouse. It is now the world's leading semiconductor company by market cap. CEO Jensen Huang anticipated the need for accelerated computing in 1999 and introduced the graphics processing unit (GPU). Accelerated computing uses a dedicated processor to tackle intense tasks, such as the data crunching done by AI systems, rather than rely on a single CPU to do it all. This pioneering work in GPUs set the company up to enjoy massive sales to the cloud computing industry, where AI systems are housed. In its fiscal third quarter, ended Oct. 27, Nvidia's revenue reached a record $35.1 billion, an impressive 94% increase year over year. This led to a quarterly gross profit of $26.2 billion, nearly double the prior year's $13.4 billion. Nvidia's AI products are just getting started. The company is rolling out its latest computing architecture, called Blackwell. The new platform "pushes the boundaries of scientific computing," according to management. It will be a key revenue driver. Huang said current systems were trained on the human-generated data that existed before AI. Now, AI is starting to learn from its own synthetically produced content. This requires more computing power, which Blackwell delivers. "And so, we're seeing a lot of demand coming from a lot of different places," Huang said, indicating customers continue to crave his company's products for AI. Between Wolfspeed and Nvidia, the latter's strong sales, robust profits, and the ongoing demand seem to make it the clear choice between these two semiconductor giants. However, stock valuation is another important consideration. Comparing Wolfspeed and Nvidia using the price-to-sales ratio (P/S), a metric measuring how much investors are willing to pay for every dollar of sales, is revealing. Wolfspeed's recent struggles have resulted in its stock dropping over 80% this year through Dec. 13. Consequently, its P/S is the lowest it's been in years, while Nvidia's has done the opposite thanks to its AI success. Hence, Wolfspeed stock emerges as the better value, and could potentially deliver more upside over the long run, if the company can rebound from its current challenges. But because it faces a number of near-term headwinds, only investors with a high risk tolerance should consider purchasing shares. For others, Nvidia's success to date and the opportunities for continued sales growth with Blackwell make it the better long-term investment in the semiconductor sector.