AMD Stock (NASDAQ:AMD)
Shares of Advanced Micro Devices, Inc. (NASDAQ:AMD) have risen to a new one-year high after chipmaker Nvidia Corporation (NASDAQ:NVDA) smashed revenue projections for the first fiscal quarter last week, owing primarily to robust demand for artificial intelligence chips. While I still believe AMD has a good position in the Data Center industry, thanks in part to its recent purchases of Pensando and Xilinx, I believe the rising euphoria is a compelling case for investors to consider selling into the strength. AMD’s second-quarter projection is poorer than Nvidia, and AMD shares are now technically extremely overbought. This should make it easier for investors to sell to speculators.
Exuberance Is Being Driven by Strong AI Demand
Nvidia provided a very positive prognosis for the second fiscal quarter last week when it disclosed earnings that were significantly higher than projected for Q1’23. Nvidia anticipates a top line of $11B +/- $200M for FQ2’24, implying that revenues might increase by an astounding 53% quarter over quarter. According to Nvidia, the increase in revenue is primarily attributable to enterprise demand for artificial intelligence chips. The release of the AI chatbot ChatGPT has captivated the imagination of numerous organizations looking to capitalize on their own generative AI solutions, driving up demand for artificial intelligence processors. Nvidia reported a considerable reacceleration of its top-line growth in the first fiscal quarter (+19% Q/Q) due to strong AI chip demand.
Nvidia’s second-quarter forecast was likewise substantially more optimistic than AMD’s. Nvidia’s main competitor in the chip manufacturing market expects revenues of $5.3 billion +/- $300 million, implying a 7% reduction in revenue quarter over quarter. Nvidia’s future is brighter than AMD’s because the company has made an aggressive push into artificial intelligence in recent years, which is now paying off. For example, Nvidia has developed its AI platform for enterprise customers, which assists companies in integrating AI capabilities into their organizations. AI has the potential to play a significant role in driving analytical insights and increasing productivity for firms that use Nvidia’s AI platform.
The impressive earnings release from Nvidia led to a 25% boost in the company’s share price. This aided other chipmakers, such as AMD. AMD stock rose 17% when Nvidia published FQ2’24 profits last week, yet Nvidia stock has outperformed AMD this year.
AMD vs. Nvidia: a Valuation Comparison
After last week’s price surge, Nvidia is trading at a nosebleed valuation of 19.2X ahead of revenues, while AMD is trading at around 7.5X forward revenues. AMD has also recently reached its one-year average P/E and average P/S ratios, which coincides with a significant rise in investor mood last week… which I believe makes this an appropriate time to contemplate selling the euphoria. While AMD is also capitalizing on the AI hype, I believe AMD’s and Nvidia’s earnings and revenue prospects are more than adequately reflected in their valuations, with Nvidia possibly already priced to perfection.
According to consensus forecasts, AMD’s revenue will increase by 3% this year, while Nvidia’s sales will increase by 59%. Last week, Nvidia’s EPS projections were reset considerably upward, while AMD’s estimates stayed relatively unchanged. As a result, I believe AMD’s price increase last week gives investors a strong incentive to sell… and maybe purchase them back later at a much lower price.
AMD Is Currently Significantly Overbought
AMD’s share price spike last week has pushed the company into overbought territory. The RSI shows a value of 82.88, indicating that AMD is technically overbought. In my perspective, it is not a bad time to get into the hype.
There is a danger for AMD that top-line growth could slow in the future, especially if the PC market remains poor, as it has been in recent quarters. According to research firm Gartner, global PC shipments fell 30% year on year in the first quarter, posing a challenge for AMD’s Client and Gaming businesses, which rely on gamers upgrading to new processors and graphics cards.
Last Thoughts
Let us not deceive ourselves: Nvidia’s projection for the second fiscal quarter… which was significantly stronger than AMD’s due to Nvidia’s substantial concentration on the artificial intelligence industry… was the reason for AMD’s sharp rise in pricing last week. While I admire AMD’s posture in the Data Center industry, particularly in relation to its extremely successful EPYC server processors, I feel now is an excellent moment to capitalize on rising excitement and sell AMD shares into strength. AMD stock has risen 17% in the last week, and the stock is now technically quite overbought.
While Nvidia Corporation receives a substantially higher sales multiplier than Advanced Micro Devices, Inc. due to its greater revenue growth potential, both businesses are heavily valued, in my opinion, leaving limited room for upside. This could be an excellent time to sell AMD stock to eager purchasers.
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