Nvidia (NVDA +0.52%) and Advanced Micro Devices (AMD +0.53%) have been top performers on the stock market this year, with shares of both high-flying chipmakers crushing the broader market easily.
Nvidia, however, has been the better pick of the two, as the chart below shows. AMD shares lagged the market in the earlier part of the year before stepping on the gas in the past few months. Does this make Nvidia a better growth stock going into the New Year? Or will AMD turn the tables and outperform its bigger rival?
The case for Nvidia
Nvidia announced its fiscal 2022 third-quarter results on Nov. 17, which made it clear that it is on track to close the year on a high. The company is set to end the fiscal year with $26.7 billion in revenue, which would be an increase of 60% over the prior year. Its earnings are expected to jump to $4.34 per share from $2.50 per share in fiscal 2021.
However, analysts estimate that Nvidia's growth rate will taper off in fiscal 2023, which starts in February 2022. The company's earnings are expected to increase to $5.20 per share in fiscal 2023, which would be an increase of nearly 20% from this year's estimate. But Nvidia could clock a faster pace of growth since its two biggest businesses are firing on all cylinders, and they are expected to keep getting better in 2022 and beyond.
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The discrete graphics card market, for instance, is expected to grow from $23.6 billion in 2020 to $54 billion in 2025, according to Jon Peddie Research. Nvidia is in a terrific position to take advantage of this massive growth, since it commands 83% of the discrete graphics card market. Meanwhile, the company's 80% share in the market for data center-focused graphics cards will be another notable catalyst, since this is another fast-growing niche, clocking 42% annual growth and expected to hit $20 billion revenue by 2027.
The gaming and data center markets together produced nearly 87% of Nvidia's revenue last quarter. As both these markets have a lot of room for growth, they should help Nvidia outpace Wall Street's expectations and deliver stronger growth. That could help Nvidia stock maintain its outstanding momentum and fly higher in 2022.
The case for AMD
Advanced Micro Devices is on track to finish 2021 with revenue growth of 65% over last year, according to the guidance issued by the company in October. That would translate into stronger growth compared to Nvidia. AMD's earnings are expected to more than double in 2021 to $2.63 per share, as compared to $1.29 per share in 2020.
Analysts expect AMD to maintain its outstanding pace of earnings growth in 2022 as well, estimating that its earnings could jump close to 27% next year to $3.34 per share on a 19% jump in the revenue. So AMD's pace of growth is also expected to taper off next year, as in the case of Nvidia -- but it is expected to deliver faster bottom-line growth.
However, just like Nvidia, AMD has a lot going for it that could help it crush Wall Street's expectations, as it has done in the past four quarters. The gaming console market, for instance, is expected to grow at a faster pace in 2022. That should give AMD a nice shot in the arm, as it is supplying semi-custom chips to both Microsoft and Sony for their consoles.
Sales of Sony's PlayStation 5 console could hit 33.5 million units next year as per third-party estimates, up significantly from this year's estimate of 17.9 million units. This, however, is just one of the many catalysts for AMD stock. The company's share of the server-processor market is expected to more than double in 2022 to 25% from an estimated 10% to 11% in the first quarter of 2021.
The server CPU market is expected to generate $19 billion in revenue by 2023, and cornering a quarter of this space could substantially boost AMD's total revenue. So AMD also has notable catalysts like Nvidia that could help it remain a growth stock in 2022 and beyond. This makes choosing one of the two a difficult proposition -- but there is a tiebreaker that could help investors decide which of these chipmakers may be worth buying.
The verdict
It wouldn't be surprising to see both Nvidia and AMD deliver impressive gains to investors once again next year. However, AMD is way cheaper than Nvidia, which is why investors looking to add a growth stock to their portfolios may consider buying the former.
AMD trades at 45 times trailing earnings, compared to Nvidia's multiple of nearly 91. AMD's sales multiple of 12 is also way cheaper than Nvidia's multiple of 30. So investors looking for a more affordable growth stock can go for AMD, since it is clocking really impressive growth and trades at substantially lower multiples when compared to its bigger rival.
