Nvidia (NVDA 2.82%) is dominating Advanced Micro Devices (AMD 0.61%) in their respective artificial intelligence (AI) offerings. Nvidia grew second-quarter revenue by 102% versus AMD's 18% decline. With how large an opportunity AI is, AMD couldn't afford to sit on the sideline and watch its rival run away with the title. So, it made an acquisition.
On Oct. 10, AMD announced its intention to acquire Nod.ai to better compete with Nvidia. Is this what AMD needs to finally be on a level playing field with Nvidia? Or is this acquisition too little too late? Let's find out.
Nod.ai vastly improves AMD's AI software
Nod.ai is an AI software company that specializes in open-source AI technology. With its help, AMD can create software that optimizes its products in an AI setting, which rival Nvidia has been doing for a while. Vamsi Boppana, senior vice president of AMD's Artificial Intelligence Group, said, "The addition of the talented Nod.ai team accelerates our ability to advance open-source compiler technology and enable portable, high-performance AI solutions across the AMD product portfolio."
This is exactly what AMD has been missing, making this acquisition a smart one. And it didn't have to fork over a fortune for it. The terms of the deal weren't disclosed, but Nod.AI has raised around $36.5 million through various funding rounds. This makes the acquisition fairly small, so it should be easy for AMD to digest.
But can this turn AMD's AI aspirations around?
Nvidia is on a different level from AMD
While this acquisition should have no problems getting approved, even the most basic deals have recently been challenged by regulatory bodies. Getting the Nod.AI priorities and business strategy switched over to align with AMD will also take some time. So investors are probably a year out before seeing dedicated AMD's AI software optimized for its hardware.
With Nvidia projecting 170% growth in the third quarter, the clock is ticking for AMD. And it's not known how large the AI data center demand will be. Once companies have enough GPUs (graphics processing units) to power their data centers, will they need to build other data centers or upgrade to the latest technology?
This is a vital question that no one can answer, and there could be a singular wave of massive demand that AMD might miss.
I don't think the company will miss this trend completely, but the lead Nvidia has created is likely too much to surpass. AMD is fighting an uphill battle because its rival's technology is proven while its own is not.
And with AMD highly exposed to more consumer-facing businesses that have struggled recently, it's much harder to make the case for investing in it, instead of Nvidia. The companies trade at nearly the same forward valuation, so choosing AMD over Nvidia seems like a bad idea.
AMD PE ratio (forward) data by YCharts. PE = price-to-earnings.
Even though I think this acquisition is smart for AMD, I don't think it's enough to catch Nvidia, although it will improve AMD's AI product line and maybe help cut into Nvidia's market share. Still, AMD doesn't seem like a better investment than Nvidia, even though Nvidia has its own problems.
