The semiconductor industry has been under “bullish attack” in 2021. The iShares Semiconductor ETF (SOXX) - Get iShares PHLX Semiconductor ETF Report is up more than 50% in the past year, with two of the most relevant players in the sector competing for the spotlight: NVIDIA (NVDA) - Get NVIDIA Corporation Report and Advanced Micro Devices (AMD) - Get Advanced Micro Devices, Inc. Report.
The rally has been fueled by several catalysts: sustainable revenue growth with long-term opportunities in areas like games, EV and the metaverse; rich gross margins; and strong balance sheets. Today, we look at NVIDIA and AMD stocks and ask the question: which of these two is a better buy at current levels?
(Read more from Wall Street Memes: BABA Stock: Despite Earnings Miss, Experts See 54% Upside)
NVDA stock according to Wall Street
NVDA has a consensus strong buy rating by Wall Street experts, based on 24 reports released in the past 3 months. The average price target on the stock is $356, which represents very modest 8% upside potential from current levels.
The chip company announced Q3 results on November 17. Since then, analysts have reinforced their bullishness as the stock surged another 12% after earnings.
- Bank of America analyst Vivek Arya raised the company’s price target to $375.00 from $340.00 after earnings, pointing at 14% upside potential. The analyst sees NVDA’s having a unique combination of “highly leverageable silicon, software, scale and systems expertise” that will continue to position it at the forefront of some of the largest and fastest growth markets in tech.
- Craig-Hallum analyst Richard Shannon also raised NVDA’s price target after earnings to $350 from $220, suggesting modest gain opportunity of 6%. While he keeps a buy rating on the shares, he also suspects that the gaming cycle has hit its peak. Still, the analyst is raising estimates as nothing seems to be slowing NVIDIA in the data center.
- Susquehanna analyst Christopher Rolland reiterated his buy recommendation on NVDA after earnings, forecasting a 9% upside potential. The analyst sees data center as the star of the show, and he expects to see even more growth in 4Q.
AMD stock according to Wall Street
Analysts are also bullish on AMD stock, based on 22 recent reports. But the recommendation, in this case, is only a “moderate buy” and the $142 average price target counterintuitively represents 9% downside potential. AMD share price has probably run to fast for Wall Street to catch up.
- Wedbush analyst Matt Bryson maintained a buy recommendation a few days ago and raised AMD’s price target to $165 for mid-single digit upside potential. According to the analyst, "so as long as AMD executes," the company should be able to gain share over the mid-term to fuel growth over the next few years. Mr. Bryson also mentioned AMD's data center, which makes him more confident in the thesis.
- Goldman Sachs’ Toshiya Hari, also an AMD bull, raised the share price target to $170. The analyst seemed surprised by the Meta/Facebook design win since the company has historically been a loyal user of Intel processors. The expert is also encouraged by the company's updated server CPU product pipeline. In the end, AMD should grow market share, margins, EPS, and FCF beyond what Wall Street has been modeling, according to Goldman.
- Jefferies analyst Mark Lipacis is another one with a buy recommendation on AMD, but his $145 price target on the stock represents downside risk of 7%. The analyst’s bull case relies on Meta Platforms being a huge deal win for AMD to accelerate market share gains.
Wall Street Memes’ take
The fundamentals of both NVDA and AMD appear to be as strong as ever. Accelerated growth in the core business segments and upbeat outlook should appeal to growth investors. However, such expectations for future financial results could be valuing NVDA and AMD at too rich a multiple.
NVDA, for instance, trades at a current P/E ratio of 74 times – the second highest multiple among the 20 largest companies by market cap, only trailing Tesla TSLA). AMD, valued at a slightly lower P/E ratio of 64 times, cannot be considered a bargain either.
More easily than finding many fundamental differences between NVDA and AMD, we see more similarities between the stocks. Both companies should attract growth investors who think that the long-term opportunities in tech might be underappreciated today. The more value-conscious investor, however, will probably be discouraged by the valuation multiples in both cases.
Get more expert analysis on NVDA and AMD
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)