NVIDIA vs. AMD: Both Offer Unique Growth Opportunities
The comparison between NVIDIA Corporation (NASDAQ:NVDA) and Advanced Micro Devices, Inc. (NYSE:AMD) isn’t a straight apples-to-apples analysis. The former is focused on graphic chips, while the latter is a diversified semiconductor company.
But enough products overlap in that a detailed analysis of NVIDIA vs. AMD is warranted—especially in the graphics processing unit (GPU) space, in which both are industry leaders. NVIDIA stock and Advanced Micro Devices stock have been huge beneficiaries of this explosive growth.
In 2016 alone, the personal computer (PC) gaming market garnered more than $30.0 billion in revenue. This was up 20% percent from the previous year.
A microcosm of the huge demand for graphics chips is the e-sports market.
Goldman Sachs Group Inc (NYSE:GS) values the e-sports market at $500.0 million in 2016 and expects a compound annual growth rate of 22% over the next three years. That would make e-sports a $1.0-billion industry. (Source: “The eSports Competitive Video Gaming Market Continues to Grow Revenues & Attract Investors,” Business Insider, March 15, 2017).
NVIDIA vs. AMD: Who Has the Advantage?
GPU market share
In terms of GPU market share, NVIDIA Corporation has taken an edge over Advanced Micro Devices, Inc. While the overall add-in board market fell due to market shifting, NVIDIA still increased its discrete GPU (dGPU) share.
Overall dGPU shipments fell 29.8% quarter-over-quarter (19.2% year-over-year). Meanwhile, NVIDIA Corporation’s dGPU market share widened by four percent to 72.5%, versus Advanced Micro Devices, Inc.’s dGPU market share of 27.5%.
|Q3 2015||Q4 2015||Q1 2016||Q2 2016||Q3 2016||Q4 2016||Q1 2017|
(Source: “Moderate Sales in the First Quarter, the GPU Industry Starts to Gear Up for Q3,” Jon Peddie Research, last accessed August 14, 2017.)
The ability to increase market share in decelerating growth environments is a surefire indicator of industry leadership. Advantage: NVIDIA.
While NVIDIA Corporation earned just over 62% of its revenues in the GPU space in Q1 2017, the company is expanding in other areas.
Its “Drive PX 2” chips process car camera information and power sensors that give the vehicle “awareness.” They are becoming an increasing factor in the bottom line.
NVIDIA’s automotive revenues grew 37% year-over-year in Q4 2017, validating the attention in the space.
The company’s Rolodex features 80 partners, including some of the world’s largest automakers. As driverless cars become more prevalent in society, look for NVIDIA Corporation to continue to expand its industry-leading presence.
Advanced Micro Devices, Inc.’s presence in the driverless car space is evolving. There’s not much in the way of revenues currently, but that could be changing. Advanced Micro Devices is developing the “Radeon Instinct” line of deep-learning-oriented GPUs.
The company hopes its GPU accelerators will become more readily adopted in machine intelligence—a place where driving is going. Advanced Micro Devices, Inc. is facing off not only against NVIDIA, but against other chief rival Intel Corporation (NASDAQ:INTC).
Given that NVIDIA Corporation is the more established player, with clear-cut distribution channels, advantage: NVIDIA.
NVIDIA Corporation’s data center growth hit a bit of a rough patch recently. It was largely responsible for the stock’s six-percent plunge post-earnings report in July (Source: “NVIDIA Shares Fall as Investors Fret Over Data Center Growth,” Reuters, July 31, 2017).
Although its revenues more than doubled to $416.0 million, they came in shy of expectations. However, the $7.3-million-dollar miss seems relatively tame. It accounts for less than two percent of the company’s total revenues in a nine-figure market.
NVIDIA Corporation counts goliaths such as Amazon.com, Inc.‘s (NASDAQ:AMZN) “Amazon Web Services” and Microsoft Corporation (NASDAQ:MSFT) among its customers.
Meanwhile, Advanced Micro Devices, Inc. is just getting started. The company is seeking to unseat Intel Corporation’s near-monopoly in the data center space with an upcoming line of “EPYC” server CPUs. According to analysts, Advanced Micro Devices has set a target to capture 10% of the data center business (a $17.2-billion market) at Intel’s expense.
So the verdict isn’t in yet, although early returns look promising.
Artificial Intelligence & Virtual Reality
Intel Corporation is still the king of chips, but in the shrinking desktop PC pie. The future—deep learning chips requiring immense processing power loads—belongs to NVIDIA Corporation and Advanced Micro Devices, Inc. (at least it has since 2016, when both stocks rocketed up based on hype).
Advanced Micro Devices, through its Radeon Instinct line, produces GPUs dedicated to accelerating machine learning. This caters to next-generation consumer products requiring this added dimension. From autonomous vehicles and drones to personal robots and nanotechnology, Advanced Micro Devices, Inc. is considered an emerging leader in the space.
NVIDIA Corporation, meanwhile, continues to lead. It dominates the graphics card segments and has taken a commanding lead in the autonomous vehicle market. It now looks to expand its market share in other areas of artificial intelligence (AI).
The company recently announced “Project Holodeck,” a collaborative virtual reality (VR) environment that incorporates the feeling of real-world presence through sight, sound, and haptics. (Source: “NVIDIA Reveals Holodeck, Its Groundbreaking Project for Photorealistic, Collaborative VR,” NVIDIA Corporation, May 10, 2017).
This will allow creators to import high-fidelity, full-resolution models into VR to collaborate and share with colleagues or friends, and to make design decisions easier and faster.
Both companies stand to benefit from future growth in the VR space. It’s estimated that shipments of VR headsets increased by 1047% year-over-year to 8.2 million in 2016. This helped propel the VR space to over $1.0 billion in revenue for the first time. (Source: “The Demand for AI is Helping NVIDIA and AMD Leapfrog Intel,” The Verge, January 11, 2017).
More VR headsets sold means more GPUs sold. The segment should grow by double-digits for at least the next five years.
NVIDIA vs. AMD: Investment Verdict
While both NVIDIA Corporation and Advanced Micro Devices, Inc. are powerhouses in the graphics card space, NVIDIA’s advantage in AI will be hard to overcome. The company dominates GPU AI chip sales, giving it an overwhelming advantage in the burgeoning driverless car and drone sectors.
While Advanced Micro Devices, Inc. is playing catch-up here and may ultimately steal some market share away from NVIDIA Corporation, it will be an uphill battle. From a strict growth perspective, NVIDIA would likely be the better play.
Both NVIDIA stock and AMD stock have rewarded investors over the last year, but NVIDIA Corporation has an added bonus. It pays a $0.14-per-share dividend, while Advanced Micro Devices, Inc. doesn’t grant a dividend at all. This edge may sway investors who seek income and growth to NVIDIA’s corner.