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AMD and Nvidia are two of the hottest chip stocks on the market. But if you can only buy one, there's a clear winner...
Both Advanced Micro Devices Inc. (NASDAQ: AMD) and Nvidia Corp. (NASDAQ: NVDA) are growing at a quick pace in 2021, thanks to the chip shortage that began in 2020. So far, Nvidia is up 70% year to date. And AMD has gained 45% since May.
This shortage pushed the cost of semiconductors higher and, in turn, drove the share price of these companies higher. But which chip stock is the best buy?
Well, that's what we're here to find out.
And to do so, let's first take a closer look at AMD.
AMD Stock: An Affordable Chipmaker with Strong Growth
When it comes to chip manufacturing, AMD has the advantage. It's been making a comeback over the years and improving the lineup of chips to better suit the laptop and PC markets. And they've shifted focus to hardware for data centers and the cloud computing services.
But Intel Corp. (NASDAQ: INTC) is AMD's main competition here. The company made over $77 billion in sales from PC and related hardware over the past year. Though AMD doesn't quite stack up, sales were just over $13 billion in that same time frame. Revenue rose by 99% over the last year while Intel's dropped by 0.49%, which is great news for AMD. It means that the company is capturing new market shares from competitors - like Intel.
AMD manufactures affordable CPUs (central processing units), GPUs (graphics processing units), and other processors for both personal computing and data centers to better challenge Intel. It's that tactic that has allowed it to compete and surpass Intel.
But it's adding a new chip to its portfolio: FPGA (field programmable gate array). This type of chip is used in data centers, networking, industrial equipment, you name it. This is all thanks to its acquisition of Xilinx, a leader in the FPGA space. And it will serve to further challenge Intel's dominance.
But the real kicker is AMD's profit margin.
AMD hasn't been as profitable as other semiconductor companies in previous years. But as it increases its market share and develops new chip technology, so too does its profit margin. And so far, that's paid off well for AMD. The company's net profit margin has gone up by 126% year over year.
Now, let's take a look at Nvidia...
Nvidia Stock: Much More Than a Semiconductor Company
We've said it before: If Nvidia were just a semiconductor manufacturer, the stock would be overpriced. Fortunately, it is much more than a semiconductor company. And while Nvidia got its start designing powerful GPUs for video game graphics and professional markets, it's a growing tech company that could one day rival the tech giants.
That's because the company also pours a large amount of resources into research and development - roughly $1.15 billion, or more than 20% of its total revenue. That's one of the highest amounts among the tech giants, and it's allowed Nvidia to become one of the leaders within the high-tech industry. But despite all that spending, Nvidia's profit margin is up 126% year over year.
Nvidia is pushing to be a leader in artificial intelligence (AI). AI is an intense computing process that pushes the limited of CPUs. It requires fast and reliable processors for optimum performance. The way to train and run AI systems, a process inspired by the way our brains function via a network of neurons called Deep Learning, calls for top-notch GPUs.
And Nvidia's are well-suited for the task.
Nvidia-made GPUs can be applied to hardware found in data centers as well as personal devices. Nvidia also offers its DGX series, supercomputers designed to give users powerful tools for AI exploration.
This opens Nvidia up to be a major benefactor of the global AI market, a market valued at $62.35 billion in 2020. And one that is expected to grow to roughly $930.72 billion by 2028.
And none of that considers Nvidia's current position in the gaming industry - an industry expected to be worth $256.97 billion by 2025. Pair it all together, and you can see why Nvidia's revenue is up 68% - which beats out its own expectations by 2%.
So, which chip stock is the best buy?
Which Is the Best Long-Term Investment: AMD or Nvidia
While AMD years of investment are starting to pay off - making it a notable addition to any portfolio - it doesn't quite stack up against Nvidia when it comes to a long-term investment.
Though Nvidia is a semiconductor business at heart, the company is expanding far beyond tech component design. In fact, it is moving to help its customers make new applications that utilize AI. And it's committed to the research and development that is crucial for furthering this cutting-edge technology.
And it helps that Nvidia has a hand in many different areas of that cutting-edge technology. Between the gaming industry, collaborative efforts with autonomous vehicles and AI, and development of cloud-based software, Nvidia has years of high-growth potential yet to come. The company is deeply steeped in the forefront of technology, and it's not shy to spend money in order to make money.
The fact that Nvidia also has strong financials is just a bonus to the work it does as a company. In the second quarter of 2021, Nvidia earned $5.66 billion in revenue, an increase of 83.8% over the year prior. And the company netted $1.91 billion in income, up 108.51%, and a profit margin of 13.44%.
So, it's easy to understand how Nvidia has climbed 70% year to date. The company has strong momentum moving forward and is involved in a number of high-growth industries - it's how shares of Nvidia could even jump 190% higher by 2025.
And that's what makes Nvidia the best long-term investment to make out of these two chip makers.