To The Moon

As we have seen how chip stocks announcement played out at the CES 2024, we can see $NVIDIA Corp(NVDA)$ and $Advanced Micro Devices(AMD)$ have been on an absolute tear over the last few days.

Investors have put aside the bearish start of 2024 and begin to be bullish on the artificial intelligence (AI) megatrend. Both AMD and Nvidia manufacture specialized chips that help power data centers for multiple AI platforms. While Nvidia stock more than tripled in 2023, AMD stock gained 127.6% last year. 

If we looked at how the price trend have been set up, we can see that only Nvidia and AMD has shown potential upside so far from the chart below. Other chip developers did not enjoy such a boost after their chip announcement at the CES 2024.

Other chipmakers have mentioned robust artificial intelligence demand in their latest earnings, yet few have seen as high a revenue boost. The upcoming Q4 earnings would be something we can look forward to.

There is something we need to be aware as the AI hype cycle could go into a “trough of disillusionment” phase in 2024, will Nvidia still stay strong or become more vulnerable.

In this article, I would be looking at whether Nvidia provide more upside potential than AMD for investors as we are seeing tech stocks coming out of pullback period.

NVDA Stock Bullish Setup

With its new chips coming up, Nvidia is well-positioned to benefit from the adoption of generative AI in the upcoming decade. In fiscal Q3 of 2024 (ended in October), Nvidia reported sales of $18.1 billion, an increase of 206% year over year. The majority of these gains were driven by Nvidia’s data center segment. 

Market is expecting Nvidia to increase sales by 118.4% to $59 billion in fiscal 2024 (ending in January) and by 56.5% to $92.3 billion in fiscal 2025. Adjusted earnings per share are forecast to grow by 102.5% annually in the next five years. So, priced at 24.2 times forward earnings, NVDA stock is still quite cheap, given its stellar growth estimates. 

Market research company Gartner (IT) forecasts AI chip sales to surge to $67 billion in 2024, an increase of 25% year over year. Nvidia currently has a market share of almost 80%. Revenue is expected to be around $54 billion in the next 12 months.

Out of the 35 analysts covering NVDA stock, 30 recommend “strong buy,” three recommend “moderate buy,” and two recommend “hold.” The average target price for NVDA is $653, indicating an upside potential of 37% from current levels. 

AMD Stock Bullish Setup

Since Jan 2014, we have seen AMD stock rising a whopping 3,710%, this give the company a valuation at $221.7 billion by market cap.

AMD’s CEO, Lisa Su, forecasts the data center AI chip vertical to grow from $45 billion in 2023 to $400 billion in 2027, providing it with enough room to grow its top line in the next four years. AMD is expected to benefit from growth in its legacy businesses, such as graphics and enterprise processors.

With AI, we could see AMD chips demand increasing, but there are challenges of slowing PC sales, higher costs, elevated interest rates, and lower enterprise spending, which other tech stocks are also facing. NOt forgetting the restrictions on exports by the U.S. government to China.

Market is expecting AMD’s sales to decline by 4% year over year to $22.65 billion in 2023. However, revenue might rise by 16.6% to $26.4 billion in 2024. Adjusted earnings per share is forecast to expand from $2.65 in 2023 to $3.73 in 2024. Priced at 39.5 times forward earnings, AMD trades at a much higher multiple compared to NVDA. However, it's growing at a much slower pace. 

Out of the 29 analysts covering AMD stock, 23 recommend “strong buy,” one recommends “moderate buy,” and five recommend “hold.” However, the average target price for AMD is $135.07, which is fractionally below the stock's current levels - suggesting that Wall Street sees more upside ahead for NVDA relative to AMD over the next year.

Summary

If we were to look at how these 2 chip stocks have been doing in terms of their earnings, Nvidia looks to have a better revenue forecast for 2024, and most important Nvidia is trading below its fair value.

Though analysts have Strong Buy for both stocks over 3 months period (since 3 months ago), there would be something to watch for chip sales after CES 2024. Not forgetting there are also other chip stocks which might also make a comeback.

I personally think we can monitor these 2 chip stocks to find potential to trade at different period.

Appreciate if you could share your thoughts in the comment section whether you think Nvidia has more upside potential than AMD?

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.

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