NVIDIA Vs. AMD: Both Offer Unique Growth Opportunities, But One is Our Clear-Cut Choice
The comparison between Nvidia Corporation (NASDAQ:NVDA) and Advanced Micro Devices Inc. (NYSE:AMD) is not 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. The Nvidia Stock price and AMD stock price have been huge beneficiaries of this explosive growth.
In 2016 alone, the 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 eSports market. Goldman Sachs Group Inc. (NYSE:GS) values the eSports market at $500.0 million in 2016 and expects 22% annually compounded growth over the next three years. That would make eSports a $1.0-billion industry. (Source: “The eSports competitive video gaming market continues to grow revenues & attract investors,” Business Insider, March 15, 2017).
In terms of GPU market share, Nvidia has taken an edge over AMD. While the overall add-in board market fell due to market shifting, Nvidia was still increase their discrete GPU (dGPU) share. Discrete GPU shipments fell 29.8% quarter-over-quarter (19.2% year-over-year), yet Nvidia increased dGPU share by two percent. Overall, dGPU market share saw Nvidia’s market share widen four percent to 72.5% versus AMD’s 27.5%.
Total dGPU vs. iGPU Market Share
|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.)
Nvidia GPU Market Share/AMD GPU Market Share
The ability to increase share in decelerating growth environments in a surefire indicator of industry leadership. Advantage: Nvidia.
Nvidia Vs. AMD – Who Has the Advantage?
While Nvidia 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 which give the vehicle “awareness.” They are becoming an increasing factor in the bottom line. Automotive revenues grew 37% year-over-year in fiscal 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 to continue to expand its industry-leading presence.
AMD’s presence in the driverless car space is evolving. There’s not much in the way of revenues currently, but that could be changing. AMD 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. AMD is facing off not only against Nvidia, but with other chief rival Intel Corporation (NASDAQ:INTC).
Given that Nvidia is the more established player with clear-cut distribution channels, advantage: Nvidia.
Nvidia 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 2016. Although 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 total revenues in a nine-figure market. (Source: “Nvidia shares fall as investors fret over data center growth,” Reuters, July 31, 2017).
Nvidia counts goliaths such as Amazon.com, Inc.’s (NASDAQ:AMZN) Amazon Web Services and Microsoft Corporation (NASDAQ:MSFT) among its customers.
Meanwhile, AMD is just getting started. They are seeking to unseat Intel’s near-monopoly in the data center space with an upcoming line of “EPYC” server CPUs. According to analysts, AMD has set a target to capture 10% of the data center business at Intel’s expense ($17.2 billion market).
So the verdict isn’t in yet, although early returns look promising.
Intel is still king of chips, but in the shrinking desktop PC pie. The future–deep learning chips requiring immense processing power loads–belongs to Nvidia and AMD. At least it has since 2016, when both stocks rocketed up based on the hype.
AMD, 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, AMD is considered an emerging leader in the space.
Nvidia, meanwhile, continues to lead. It dominates the graphics card segments and has taken a commanding lead the autonomous vehicles market. It now looks to expand market share in other areas of AI.
The company recently announced “Project Holodeck,” a collaborative virtual reality environment that incorporates the feeling of real-world presence through sight, sound, and haptics. This will allow creators to import high-fidelity, full-resolution models into VR to collaborate and share with colleagues or friends, and make design decisions easier and faster. (Source: “NVIDIA Reveals Holodeck, Its Groundbreaking Project for Photorealistic, Collaborative VR,” Nvidia Corporation, May 10, 2017).
Both companies stand to benefit by future growth in the VR space. Business Insider’s BI Intelligence forecasts shipments of VR headsets increased by 1047% year-over-year to 8.2 million in 2016. This helped proper the VR space to over $1.0 billion in revenue for the first time, according to Deloitte. More headsets sold means more GPU sold. The segment should grow by double digits for the next five years at least (and probably well beyond). (Source: “The demand for AI is helping Nvidia and AMD leapfrog Intel,” The Verge, January 11, 2017).
Nvidia Vs. AMD: Investment Verdict
While both companies are powerhouses in the graphics card space, Nvidia’s advantage in artificial intelligence (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 AMD is playing catch-up here, and may ultimately steal some market share away, it will be an uphill battle. From a strictly growth perspective, Nvidia would be the play for our hard-earned investment dollars. Both Nvidia stock and AMD stock have returned well over the calendar year, but Nvidia has an added bonus. It pays a $0.14-per-share dividend, while AMD does not grant a dividend at all. This AMD vs Nvidia edge may sway investors seeking income and growth to their corner.