Advanced Micro Devices (NASDAQ:AMD) continues to play a second-biggest role in the AI chip market, behind Nvidia (NASDAQ:NVDA). This is an admirable but frustrating position for some investors. While Nvidia is leveraging the AI revolution to reach unprecedented heights, AMD has struggled to close the gap and has fallen behind its dominant rival.
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The divergence in fate is remarkable. NVIDIA stock has soared 180% year-to-date, while AMD stock is down 7%.
Still, it hasn’t all been doom and gloom for AMD this year. The company’s chips play a key role in powering Meta’s open source AI model, which could attract cost-conscious customers looking for an alternative to Nvidia’s premium products.
Will the transition from AI model training to inference, where AI-trained models are deployed, be a sign of great success for AMD?
A top investor known by the pseudonym Nexus Research believes otherwise and that history will repeat itself in the ongoing race between Nvidia and AMD.
“NVIDIA is in a strong position to maintain its dominant market share as we move from the training phase to the inference phase,” asserts the 5-star investor in the top 5% of TipRanks Stock Pros.
Nexus argues that AMD faces an uphill battle because Nvidia’s existing customers will eventually be able to use the same chips for inferencing workloads. Additionally, the investor emphasizes that NVIDIA’s compatibility across GPU generations makes it easier for customers to remain the undisputed market leader.
“The company is well-positioned to maintain market dominance through the inference stage, narrowing the scope for AMD’s technology to gain market dominance,” the investor added.
Still, AMD investors have reason to be cautiously optimistic. Nexus points out that AMD’s focus on open source solutions could pay off if it gains traction among customers looking for more affordable alternatives.
Valuation also paints an attractive picture for AMD. Nexus highlights a Forward PEG ratio of 0.97x, indicating a relatively attractive price point. That said, among these cheaper AI options, AMD has some great companies, notes Nexus, including Nvidia, which has a Forward PEG of 1.20x.
“NVIDIA also trades at a relatively cheap valuation of 1.20x Forward PEG, which certainly makes acquiring AMD less attractive than the market leader.” We rate AMD stock as a Hold (i.e., Neutral). Buy and evaluate NVDA. (Click here to watch Nexus Research’s track record)
I have to agree to disagree, as that seems to be the sentiment on Wall Street. AMD stock boasts a “Strong Buy” consensus rating based on 23 Buy recommendations and 7 Holds. The average price target of $185.46 suggests 35% upside potential over the next 12 months. (See AMD stock price prediction)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. Content is for informational purposes only. It is very important to perform your own analysis before making any investment.
