AMD vs. NVIDIA: The Better Semiconductor Bet for 2025

Key Points

• While most investors are still hung up on NVIDIA stock as their artificial intelligence play, AMD shares offer a much better setup.
• EPS forecasts are better than those of NVIDIA, and the stock trades at a significant discount from the leader as well.
• Wall Street analysts and institutional investors see a double-digit upside from here on AMD shares.

Most investors in the technology sector have been focused on the trends and developments around artificial intelligence names, particularly those in the semiconductor industry responsible for building the infrastructure necessary to allow for these models to work and grow from the data they are fed. The darling in this industry is found in NVIDIA Co. NASDAQ: NVDA, but there are signs that a new contender might knock on the door of a new massive rally.

While NVIDIA dominated the artificial intelligence and semiconductor space during 2024 and most of 2023, some might say that it has pushed too high as valuations reach stratospheric highs. The future growth rates projected by Wall Street analysts aren’t high enough to potentially justify today’s valuations, let alone higher ones. Knowing this, investors might look around to other names in the space for a better risk-to-reward setup.

And that is exactly where shares of Advanced Micro Devices Inc. (NASDAQ: AMD), also known as AMD, come into play.

Key valuation ratios, compared to industry peers, highlight how AMD offers one of the better setups for a potential buy.

Wall Street analysts agree, and even institutional investors are finding this enough reason to buy the stock ahead of the new year.

What Makes AMD Stock Better than Peers Today?

Two things typically drive a stock’s price: interest in that stock from the broader marketplace and earnings per share (EPS). With that foundation set, investors can assess whether a stock is in favor or out of favor with the market.

This is where price action becomes important. There is a massive divide between shares of AMD, which now trade at 55% of their 52-week highs, and shares of NVIDIA, which still stand at 92% of their 52-week highs. It is safe for investors to assume that NVIDIA has won the market’s popularity contest today.

But how about tomorrow’s? That is where the fundamentals start to matter moving forward, and it seems that AMD has stacked up enough evidence in that realm to make it a potentially better buy than NVIDIA is today. Starting with Wall Street EPS forecasts for $4.91 for the next 12 months, calling for a net jump of 48.3% from today’s $3.31 EPS.

Compared to NVIDIA’s EPS projections for $4.14 a share, which would only grow the underlying earnings by 41.3%, AMD looks like it has a better chance of taking over the market’s premium in this regard. However, growth rates that are less than 10% apart are not enough reason to buy a stock; valuations need to be considered.

On a forward price-to-earnings (P/E) ratio, the way the markets place a value today on tomorrow’s earnings, AMD trades at a 25.6x valuation compared to NVIDIA’s 34.0x multiple. This significant discount starts to make NVIDIA look a bit more expensive, but the trend doesn’t end there.

When comparing the two on a price-to-book (P/B) basis, NVIDIA stock trades at a massive 51.4x multiple, while AMD stock is only at 3.9x today. Looking at it this way, investors can see how NVIDIA’s comparable EPS growth rates don’t really justify paying this high of a multiple.

Wall Street Wants to Close the Gap

Looking at all these divergences between AMD and the industry leader, NVIDIA, made a few analysts on Wall Street aware of a potential easy win for their careers and reputations. Particularly those at Citigroup, who, as of October 2024, placed—and kept—a buy rating on AMD stock, this time with a $200 price target.

To prove these views right, the stock would have to rally up to 59% from where it trades today, not to mention get close to its 52-week high prices. As bullish as these projections are, these analysts weren’t the only ones willing to make their optimism public.

Institutional buyers from State Street, as of November 2024, decided to boost their holdings in AMD stock by 2.3%, netting their position at a high of $11.5 billion today, or 4.3% ownership in the company to give investors another bullish gauge to lean on.

Even the bears know better than to bet against this stock, as the company’s short interest declined by 8.8% over the past month, a sign of bearish capitulation facing all of the bullish factors out in the market today.