Last year, the semiconductor industry saw strong demand for semiconductors as people working and studying remotely led to rising demand for laptops, PCs, and gaming consoles. According to an EET Asia report from earlier this month, citing data from International Data Corp. (IDC), semiconductor revenues rose 10.8% year-on-year on a global basis to $464 billion in 2020.
According to IDC, the semiconductor market is expected to grow 12.5% year-over-year to $522 billion in 2021, fuelled by rising demand for semiconductors used in 5G, automotive, computing, and consumer applications.
Using the TipRanks Stock Comparison tool, let us compare two chip companies, Nvidia and Advanced Micro Devices, and see how Wall Street analysts feel about these stocks.
Nvidia’s products include graphics processing units (GPUs) and data center platforms and systems. The company reported its earnings on May 26 with adjusted earnings of $3.66 per share in Q1 FY22, a jump of 103% on a year-over-year basis, topping the Street’s estimates of $3.28 per share. Revenues popped 84% year-over-year to $5.66 billion in the first quarter beating analysts’ expectations of $5.41 billion.
NVDA’s data center, gaming, and professional visualization platforms recorded a year-over-year jump of 79%, 106%, and 21%, respectively.
Nvidia anticipates revenues of around $6.3 billion in the second quarter of FY22. The company continues to expect its gaming and data center platforms to continue to register a quarter-on-quarter revenue growth in the second quarter.
The company’s GeForce RTX 30 Series GPUs have been incredibly popular and in strong demand. NVDA commented on the GeForce RTX 30 Series GPUs at its earnings call, “Channel inventories are still leading and we expect to remain supply constrained into the second half of the year.”
In the first quarter, Nvidia introduced cryptocurrency mining processors (CMP) that earned revenues of $155 million in Q1. In the second quarter, the company anticipates revenues from CMPs to be $400 million.
Nvidia foresees a significant opportunity to earn revenues from the Omniverse Enterprise platform, a technology platform that enables 3D design teams to work together in real-time on a global basis. The company stated at its earnings call that over 400 companies are in the process of evaluating Omniverse and around 17,000 users have downloaded the open beta platform.
The company has also benefited greatly from its acquisition of Mellanox Technologies. NVDA completed the acquisition in April last year and paid $7 billion for the company.
NVIDIA CEO Jensen Huang said about the acquisition, “Mellanox, one year in, has exceeded our expectations and transformed NVIDIA into a data-center-scale computing company.”
In April this year, the company unveiled an artificial intelligence (AI) enabled processor, NVIDIA DRIVE Atlan, for autonomous vehicles and is targeting automaker’s autonomous vehicle models in 2025.
The company has also announced its first data center CPU, NVIDIA Grace, its first Arm-based processor CPU that is expected to be available in early 2023. Nvidia said at its earnings call that the US Department of Energy's Los Alamos National Laboratory and the Swiss National Supercomputing Center had already announced plans to build supercomputers powered by the Grace data center CPU.
Nvidia’s proposed $40 billion acquisition of Cambridge-based Arm has come under scrutiny by the UK Government. In April this year, the UK Secretary of State had issued an intervention notice on behalf of the UK Government citing national security interests.
However, Nvidia’s EVP and CFO, Colette Kress said on the Q1 earnings call, “On our Arm acquisition, we are making steady progress in working with the regulators across key regions. We remain on track to close the transaction within our original timeframe of early 2022…NVIDIA is uniquely positioned to enhance Arm's capabilities, and we are committed to invest in developing the Arm's ecosystem, enhancing R&D, adding IP and turbocharging its development to grow into new markets in the data center, IoT and embedded devices; areas where it only has a light footprint, or in some cases, none at all.”
On May 24, Nvidia’s board declared a 4:1 stock split in the form of a stock dividend to make its shares more accessible to a larger number of employees and investors. The proposed split will increase the company’s outstanding common shares to 4 billion. However, the split is conditional on shareholders’ approval at NVDA’s annual meeting to be held on June 3. (See Nvidia stock analysis on TipRanks)
Following the earnings, Rosenblatt Securities analyst Hans Mosesmann reiterated a Buy and a price target of $800 on the stock. Mosesmann commented on the earnings in a note to investors, “Excellent earnings and guide last night as Nvidia hit record sales in its strategic market segments with growth to continue through the fiscal year. Management is navigating the supply chain constraints endemic in the industry and sees supply improving gradually as the year progresses.”
“In terms of the Crypto factor that has unnerved investors on the risk of a big inventory correction, we applaud management’s move to Crypto Mining Processors (CMPs) that are unusable for gaming, and effective castration of new RTX 30 series for Ethereum mining (hash rates cut in half), which point to a much more benign Crypto cycle this go-around…The ARM play, which looks like a toss-up to us, will work regardless. NVDA remains for us as the best must-own secular AI semiconductor/IP play,” Mosesmann added.
Consensus among analysts on Wall Street is a Strong Buy based on 25 Buys and 1 Hold. The average analyst price target of $728 implies 17.5% upside potential to current levels.
Advanced Micro Devices (AMD)
Advanced Micro Devices is a semiconductor company whose products include graphics processing units (GPUs), semi-custom System-on-Chip (SOC) products and chipsets, x86 microprocessors (CPUs), and accelerated processing units that integrate microprocessors and graphics (APUs).
Last month, AMD reported its first-quarter results with revenues of $3.4 billion, a jump of 93% year-on-year. This revenue growth was driven by a whopping 286% jump in Enterprise, Embedded and Semi-Custom revenues from higher sales of semi-custom SOC chipsets and EPYC server processors. The company reported non-GAAP earnings of $0.52 per share, up 189% year-on-year.
The company’s Ryzen Mobile 500 Series processors for laptops that were introduced in January are doing exceedingly well and AMD expects sales of these processors to continue to grow this year. The number of laptops powered by these processors is expected to increase by 50% compared to AMD’s earlier generation of processors.
AMD expects a significant rise in sales of its Radeon 6000 Series GPU in the coming quarters as the company ramps up production of these GPUs.
When it comes to data center GPUs, revenues are expected to rise in the second half of this year as the company increases the production of the AMD Instinct GPU to “support multiple HPC wins including Frontier, the first U.S. exascale supercomputer.”
As demand for Microsoft's (MSFT) and Sony Group’s (SNY) gaming consoles go up, AMD expects sales of its semi-custom products to remain high throughout the year.
In the second quarter of FY21, AMD has forecast revenues of approximately $3.6 billion. It expects data center and gaming products to drive this 86% year-over-year growth in revenues. AMD anticipates non-GAAP gross margin to be around 47% in Q2.
For FY21, the company expects revenues to grow 50% year-over-year driven by growth across all its businesses.
AMD’s President and CEO, Lisa Su stated at the earnings call, “We expect the number of AMD-powered instances to double by the end of the year to 400 as Microsoft Azure, Amazon, Google, IBM, Oracle, and Tencent significantly expand their offerings with third-gen EPYC processors. For the enterprise, Cisco, Dell, HP Enterprise, Lenovo, and Supermicro all announced plans to expand their AMD-based offerings with more than 100 new third-gen EPYC processor-powered server platforms that deliver superior performance and total cost of ownership.”
Su added, “2021 marks an inflection point in terms of the scale, ecosystem support, and customer adoption of our EPYC and instant processors.”
The company is also on track to close its acquisition of Xilinx (XLNX) by the end of this year. In October last year, AMD announced the acquisition of Xilinx valued at $35 billion. Xilinx is a developer of highly flexible adaptive processing platforms.
On May 19, the company announced that it will buy back stock worth $4 billion. AMD intends to fund the share repurchase through cash generated from operations. (See Advanced Micro Devices stock analysis on TipRanks)
On May 24, Northland Capital Markets analyst Gus Richard reiterated a Buy and a price target of $116 on the stock. Richard said in a research note to investors that the company is likely to be 30% Intel’s (INTC) size by next year and will likely exceed Intel’s gross margins in 2023.
Richard stated, “AMD’s market share gains are likely to continue in 2H:21 and CY22 driven by corporate client and server. The acquisition of XLNX will significantly broaden AMD's IP portfolio and broaden its exposure to comms, industrial and automotive markets. We believe leadership in the x86 market is driven primarily by process technology and to a lesser extent design differentiation.”
Consensus among analysts on Wall Street is a Moderate Buy based on 10 Buys, 7 Holds, and 1 Sell. The average analyst price target of $105.40 implies 34.4% upside potential to current levels.
AMD is giving Nvidia a run for its money when it comes to demand for its GPUs and data center processing platforms. However, Nvidia seems to be targeting new industries like the cryptocurrency mining and automotive industry with its CMP processors and its AI-enabled NVIDIA DRIVE Atlan processors.
While analysts are bullish about NVDA, based on the upside potential over the next 12 months, AMD seems to be a better buy.