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 +0.00%) and Advanced Micro Devices (AMD 3.86%). 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.
Wolfspeed's solutions and AI
NYSE: WOLF
Key Data Points
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's AI approach
NASDAQ: AMD
Key Data Points
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.
Deciding between Wolfspeed and AMD
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.
Data by YCharts.
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.
