Although AMD (AMD +1.70%) and Nvidia (NVDA 0.80%) have different product lines, they still compete against each other in some offerings. As a result, the two are often compared, with Nvidia often coming out as the better company up until a few months ago.
Now, the conversation has switched as Nvidia's execution has been disappointing over the past few quarters. So has AMD dethroned Nvidia as a top semiconductor company? Let's dig in.
NASDAQ: NVDA
Key Data Points
Nvidia is more focused on one segment than AMD
Nvidia's primary products are GPUs -- graphics processing units. Its products are undoubtedly the most powerful available as 90% of the newest systems on the TOP500 (a list of the 500 most powerful computers) utilize Nvidia components. Whether the GPUs are used for gaming, data centers, artificial intelligence, self-driving cars, or crypto mining, Nvidia's products are as good as it gets.
AMD produces GPUs but also makes processors and programmable semiconductors thanks to its Xilinx acquisition. As a result, AMD is more diversified than Nvidia, which has helped tremendously over the past few quarters.
NASDAQ: AMD
Key Data Points
Each company is on a different fiscal year schedule (AMD follows the calendar year while Nvidia is in FY 2023, ending in January 2023), so direct comparison in financial metrics will be slightly skewed. However, it's the best investors have, so we will have to make do. So let's dive into the financials and see if AMD is performing better than Nvidia.
Neither company has posted stellar results recently
Headline numbers can be misleading as Nvidia's Q3 revenue (for the period ended Oct. 30) was down 17% year over year compared to AMD's revenue growth of 29% during its Q3 (ended Sept. 24). It's misleading because AMD includes Xilinx revenue even though the deal closed in February 2022. That means AMD was including the $1.3 billion in embedded processor revenue it didn't have a year before.
Now, AMD wasn't trying to be sneaky -- this is correct accounting. But after removing it from AMD's total revenue, we see that AMD's Q3 revenue fell 1% year over year. That may be disappointing, but it's still better than Nvidia's 17% drop.
Additionally, both companies have seen their profit margins fall off a cliff. That's not a good trend for either company, and investors will need to keep their eyes on it.
AMD Gross Profit Margin (Quarterly) data by YCharts
So both companies' true revenue growth is negative, and margins are falling; that's not a good sign for either business. Looking forward to next year, analysts project Nvidia will grow 9.3% year over year compared to AMD's 6.1%. Once again, these are not hugely impressive metrics.
As for which stock is cheaper, it's not a great comparison either.
AMD PE Ratio data by YCharts
Based on their price-to-earnings ratios, both stocks are trading well above what they did earlier this year and are expensive from a broader stock market perspective.
If it sounds like I'm painting a pretty grim picture, it's because I am. The semiconductor space is notoriously cyclical. Many investors tried to argue that the world had become so technologically dependent that semiconductors' cyclicality had disappeared, but the most recent results undermine that line of thinking. In reality, it's going to get worse before it gets better for AMD and Nvidia.
But which one is the better buy when that happens?
To me, it's still Nvidia. I'm more inclined to invest in the company with the best technology, even at a slight premium. However, I've paused my purchases of Nvidia's stock for a few months because I think there is more downside in this space. AMD has a technological gap to close before unseating Nvidia, and I'm unsure if this will ever occur, which is why Nvidia remains my top stock in this space.
