When it comes to technical analysis, I’m an amateur. However, I can’t help but notice the battle rival chipmakers Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD) have waged over the past five years. AMD stock and NVDA stock have swapped positions frequently, and I’m pretty sure they’ll continue to do so.

An Nvidia (NVDA) semiconductor chip on a black background.

Source: Hairem / Shutterstock.com

Over the past five years, AMD has seen a cumulative return of nearly 1,700%. Over the same period, NVDA stock is up nearly 1,500%.

However, over the past year, Nvidia has evened the score. It’s up 92%, whereas AMD is up almost 70%. The gap grew even larger over the past two months.

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NVDA stock gained 7.4% in May and 23% in June for a cumulative gain of 32%. Conversely, AMD lost 2.3% in May and gained 16% in June for a cumulative gain of 14.6%.

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Nvidia’s performance in May and June was 2.2 times AMD’s. Can it leave its competitor in the dust?

NVDA Stock Is About to Hit $1,000

In August 2020, I wrote that Nvidia’s next stop could be $1,000. At the time, it was trading around $434 per share. I thought the company was doing enough things to move its stock price higher. In hindsight, I wasn’t far off — the stock virtually doubled in price in less than a year.

“I’ve always felt what sets Nvidia apart is its cash generation. In the three months ended April 26, it had free cash flow (FCF) of $754 million, 27% higher than a year earlier. In the trailing 12 months (TTM), it generated $4.43 billion in FCF, $160 million more than at the end of January,” I wrote at the time.

“Importantly, its TTM FCF is more than 7x that of Advanced Micro Devices.”

Nvidia’s most recent quarterly report showed a business in fine form. Revenue rose 84% over last year to $5.66 billion. Operating income saw a 100% year-over-year (YoY) gain to $1.96 billion with no apparent weaknesses.

Its Q1 free cash flow (FCF) was $1.56 billion, 106.5% higher than last year’s total. But FCF actually took a step backward on a sequential basis, dropping 11.9% from the previous quarter. However, last year’s Q1 FCF of $754 million was 42.9% lower than its previous quarter, so Nvidia managed to cut its sequential decline by 72% in the latest quarter.

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Over the trailing 12 months (TTM), Nvidia’s FCF was $5.52 billion, 17.7% higher than it was at the end of fiscal year 2021. Based on its current FCF and a market cap of $496.8 billion, it has an FCF yield of 1.1%.

Valuation-wise, Nvidia is priced to perfection. Its five-year average price-to-cash flow ratio is 43.3x. Its current ratio is at 74x. That’s 1.7 times its historical average.

In June, I suggested that NVDA stock was an excellent long-term buy regardless of whether its $40 billion acquisition of Arm went through. Well, several major chip players have since stepped up to endorse the deal, so barring unforeseen circumstances, it would appear the deal is on solid footing.

I would not buy NVDA stock if your time frame for profits is less than a year. That said, momentum suggests it could hit $1,000 before the end of 2021, so aggressive investors can still try to ride Nvidia’s wave.

AMD Could Put Up a Fight

While I am definitely not a technical analyst, InvestorPlace contributor Tyler Craig is a chart watcher. On July 1, Craig suggested that AMD was ready to go on a run after being stuck in neutral for a long time.

According to my colleague, AMD stock came to life in mid-June. When volumes rose, institutions started buying up shares.

“June 17 was the day that flipped the switch for AMD. Prices broke above the 200-day moving average on huge volume, and we’ve seen nothing but extremely bullish movement since,” Craig wrote. “For the first time in a long time, all major moving averages are pointing higher giving the stock trend alignment across all time frames.”

Over the past month, AMD shares gained 12.3%. But as Craig suggests, AMD has a history of going on decent runs before petering out. This could be the beginning of a major leg up to $100 or higher.

The stock has never traded above $100 in its 41-year history. It came close in January, hitting an all-time high of $99.23. Then AMD stock fell back into the low $70s in May.

From its intraday low of $72.50 on May 13 to its recent high of $95.44 on July 7, AMD stock has gained 32%. However, if history is any indicator, the stock will likely breach $100 by the end of July.

NVDA Stock Is Strong, But AMD May Still Catch Up

In August 2020, Nvidia’s TTM FCF was more than 7x AMD’s. Today, it’s only 3.2x AMD’s TTM FCF of $1.73 billion. That’s almost double its cash flow in its latest fiscal year and easily the best free cash flow generation in its history.

AMD is trading at 53.3x cash flow in terms of valuation, significantly less than its five-year average and 28% lower than Nvidia.

Overall, I still like NVDA stock more over the long haul. However, if considering both stocks, AMD is the better near-term buy.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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