Stocks have been in a bull market since October 2022. Coincidentally, about a month later in November 2022, the world was introduced to ChatGPT, sparking a generational movement among investors who were chasing anything and everything related to artificial intelligence (AI).
Among opportunities in the AI realm, perhaps none have witnessed more gains than semiconductor stocks. Since October 2022, the VanEck Semiconductor ETF has returned 194% -- absolutely dominating the Nasdaq Composite's return of 88% and the S&P 500's gain of 68%.
Chief among the chip stocks is Nvidia, which has soared by 1,100% since the beginning of the current bull market. By contrast, Nvidia's top rival, Advanced Micro Devices (AMD 3.46%), has returned 110% over the course of the bull market. This isn't anything to turn your back on, but it's not even in the same league as Nvidia. With that said, I think shares of AMD could be on the brink of their own Nvidia-esque run.
Let's dig into why Nvidia has been all the rage among chip stocks over the last two years and analyze why AMD could be headed much higher over the course of the next few years.
NASDAQ: AMD
Key Data Points
Nvidia had a first mover advantage, but...
Throughout the AI revolution, Nvidia's bellwether has been its computing and networking business. Specifically, the company's Hopper and Ampere graphics processing units (GPUs) have seen historical demand. GPUs are the engine that power generative AI applications. And for much of the last two years, Nvidia was the only major player in town.
As it stands today, Nvidia owns 90% of the GPU market. Although a lead like that might discourage you from even considering an alternative to investing in Nvidia, I would encourage you to keep an open mind.
Image Source: Getty Images
...AMD could be closing in on Nvidia's lead, and...
In December 2023, AMD released the MI300X data center GPU. While this was nearly a year after Nvidia had already been dominating the GPU market, AMD has witnessed some considerable success that I think is going overlooked.
First off, hyperscalers including Meta Platforms, Oracle, and Microsoft are all augmenting their Nvidia architecture with AMD's MI300 accelerators. Acquiring customers of this caliber is impressive, but AMD's financial trends are what really have me excited.
Since the release of the MI300 architecture, AMD has seen its data center GPU business grow from effectively nothing into a multibillion-dollar operation, and it has continued to accelerate quarter after quarter. Meanwhile, Nvidia's data center operation is actually beginning to show signs of slowing down.
This pace of growth has provided AMD with an estimated 10% share of the GPU market -- effectively making it an outright duel between AMD and Nvidia.
... investors may want to buy AMD stock hand over fist now, before it's too late
When the current bull market began in October 2022, Nvidia's market capitalization was just $280 billion. Today, the company is valued at over $3.3 trillion, more than tenfold what it was worth just two years ago.
NVDA market cap data by YCharts.
Interestingly, AMD's current market cap of $200 billion is not that far away from where Nvidia was valued before it went parabolic. In my eyes, investors are really discounting AMD's potential over the next few years as the company continues scaling up its data center business.
With successor GPUs already scheduled for release between this year and 2026, AMD is in a good position to continue disrupting Nvidia. As such, investors looking for more growth could eventually sour on Nvidia and turn to alternatives such as AMD.
I still see Nvidia as a great opportunity, but I think the days of 1,000%-plus gains are in the rearview mirror. By contrast, I think AMD is in the early stages of its own epic run. I see AMD as a bargain opportunity right now, and I think it will be significantly higher three years from now as its chapter in the AI storyline continues to unfold.
