Finance
This chip stock will beat Nvidia in the second half of the year
There’s no doubt about that Nvidia (NASDAQ: NVDA) has been the standard bearer of the AI boom so far. Even after the recent pullback, the stock is still up more than 600% since the start of 2023, adding trillions in market value along the way.
However, past performance is no guarantee of future returns, and the AI rally is starting to broaden as investors look for alternatives to Nvidia, which may struggle to reach its peak this year. A chip stock that seems like it has a good chance of outperforming Nvidia for the rest of the year Advanced micro devices (NASDAQ: AMD)the fantastic chip manufacturer best known for its PC CPUs, now experiencing rapid growth in data center GPUs.
Let’s list a few reasons why AMD can beat Nvidia in the second half of the year.
1. The main rival is faltering
AMD’s main competition in the PC or client market is Intel (NASDAQ: INTC)the chipmaker that has dominated the PC CPU market since its inception and still holds a majority of the market share in this segment.
Intel just announced its biggest restructuring in years, with plans to lay off at least 15% of its workforce through the end of 2025 as part of a plan to cut $10 billion in costs. The company also reported disappointing second-quarter earnings, issued weak guidance and canceled its dividend. In all, the announcement portrayed a company in disarray, despite CEO Pat Gelsinger having had three years to engineer a turnaround at the longtime chipmaker.
Intel shares plunged on the news and the cuts appear to open an opportunity for rival AMD.
The next battleground between the two companies could be the AI PC chip market, and AMD seems likely to have an advantage here. AMD CEO Lisa Su says reviews of its new AI PC products like the Zen 5 platform are “very positive” and optimistic about growth in the PC market heading into 2025, calling it “a good revenue growth opportunity for us .”
Intel also expressed optimism about its Lunar Lake AI PC chip, but acknowledged that it could hinder margins due to the outsourced components, meaning it won’t be the game-changer Intel seems to need.
AMD also has a lot more momentum in the customer segment right now, with second-quarter revenue in that segment up 49% to $1.5 billion. Intel, meanwhile, reported growth of just 9% in that segment to $7.4 billion.
Expect AMD to continue gaining share from Intel in the huge market.
2. Data center revenues are booming
AMD’s Mi300 data center GPU is now available and quickly gaining popularity. Data center revenue rose 115% to $2.8 billion in the second quarter, accounting for nearly half of the company’s revenue in the quarter.
Mi300 achieved quarterly sales of $1 billion for the first time, and its customer base is expanding Microsoft became the first cloud infrastructure to open general availability to the Instinct Mi300X. Instinct is AMD’s data center platform, and AMD said major server manufacturers such as Dell And Super microcomputer have Instinct platforms in production.
Data center revenue tends to be higher margin than other segments, which should boost AMD’s profits in coming quarters as the company expects strong data center growth to continue.
The company also just acquired Silo AI, Europe’s largest private AI laboratory, which will help power the development of generative AI technologies such as inference and training, as well as large language models.
3. Nvidia’s Blackwell delay also presents AMD with an opportunity
Nvidia recently discovered a design flaw in its new Blackwell platform, delaying new chips by three months. There is still a shortage of data center GPUs and the news could provide an opening for AMD to grab more market share. It could also weigh on Nvidia’s results in the coming quarters.
While Nvidia’s leadership in the data center GPU market is not in jeopardy as it is much larger than its rivals such as AMD, the Blackwell slowdown could also weigh on its stock price and cause some reputational damage. It’s perhaps the most meaningful setback for Nvidia since the start of the AI rally.
The future for AMD
With Nvidia now trading at a market cap of $2.7 trillion and its growth now set to slow, its upside potential appears more limited than that of AMD, which could double its current $220 billion market cap as data center revenue increases and market share takes away from Intel.
The recent declines in the gaming and embedded segments should bottom out soon and improve overall results. It wouldn’t take much for AMD to realize significant gains. If expectations are exceeded, the stock could rise in the coming months.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices, Microsoft, and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 calls of $45 on Intel, long January 2026 calls of $395 on Microsoft, short August 2024 calls of $35 on Intel, and short calls in January 2026 from $405 on Microsoft. The Motley Fool has one disclosure policy.
Prediction: This chip stock will beat Nvidia in the second half of the year was originally published by The Motley Fool
