In this piece, I evaluated two semiconductor stocks: Nvidia (NVDA) and Advanced Micro Devices (AMD). A closer look suggests a long-term bullish view of Nvidia and a neutral view of AMD.
While both companies make semiconductors, Nvidia focuses on artificial intelligence, gaming, cryptocurrency, electric vehicles, robotics, and other uses. AMD is also trying to get into the AI game but also targets servers, gaming, the embedded-chip market, healthcare, laptops, and desktop computers.
Shares of Nvidia have soared 149% year-to-date and 162% over the past year. Meanwhile, AMD stock is up 3% year-to-date and 38% over the last year.
With Nvidia up so much year-to-date and AMD climbing so little, it may be a bit surprising that NVDA’s valuation is a fraction of AMD’s. We compare their price-to-earnings (P/E) ratios to gauge their valuations against each other and that of their industry.
For comparison, the semiconductor industry is trading at a P/E of 63.3x, versus the three-year average of 36.3x.
Nvidia
At a P/E of 75.2x, Nvidia is trading at a premium to its industry, but it’s well deserved due to the massive growth the company has been putting up. The forward P/E of 42.5x looks even more attractive, calling for a long-term bullish view on Nvidia.
There’s no doubt that Nvidia is way ahead of AMD in AI, and its current multiples and long-term share-price growth just make it too cheap to ignore. The company’s stock has been trading towards the middle to low end of its normalized P/E range of 37x to 107x since November 2019, which excludes the spike between March and September 2023.
Nvidia’s five-year stock return of 3,080% and a 10-year return of nearly 26,800% also make this stock one to buy and hold for the long term.
One word of caution for investors: Nvidia’s Q2 earnings report is coming up next week, and if it disappoints, it could kick off some volatility in the shares. However, it would present a nice buy-the-dip opportunity to add to a position or establish a new one.
In the last quarter, Nvidia reported explosive year-over-year growth of over 260% in…
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