nvidia (NASDAQ: NVDA) has outperformed the stock market over the years, with shares in the graphics card specialist rising more than 3,600% over the past decade.
However, Nvidia stock has seen a sell-off over the past year. The broader market correction has seen Nvidia shares balloon, with the tech giant losing more than 60% of its value since December 2021. The sell-off has reduced Nvidia’s market capitalization to just over $300. billion from more than $800 billion last December. year.
The bad part is that Nvidia may not be out of the woods yet. The chipmaker is struggling with an oversupply in the gaming graphics card market due to increased production and weak demand. This caused a big drop in the company’s gaming revenue last quarter, and Nvidia’s outlook indicates that this segment may not recover any time soon.
And now, the data center business could be in trouble thanks to US government restrictions on chip sales to China. These headwinds could keep Nvidia stock under pressure and lead to further downside. However, there are certain chipmakers that are posting impressive growth and could easily overtake Nvidia, namely Qualcomm (QCOM -3.44%) Y advanced micro devices (AMD -6.17%). Let’s see why these two companies could be worth more than Nvidia by 2025.
Qualcomm exhibits strong growth potential
While Nvidia’s top line is expected to remain flat in the current fiscal year and its earnings are projected to contract, an entirely different story is unfolding at Qualcomm. The company, whose chips are used in a variety of applications ranging from smartphones to the Internet of Things (IoT) to vehicles, is expected to end fiscal 2022 with a 32% increase in revenue and a 47% increase in revenue. % in earnings per share compared to the prior year period.
Qualcomm’s incredible growth can be attributed to strong demand for its chips across all the industries it serves. The company’s revenue from the sale of smartphone chips increased 59% year over year in the third quarter of fiscal 2022 (for the three months ending June 26, 2022), while automotive and IoT increased 38% and 31%, respectively.
The semiconductor company’s quarterly revenue of $10.9 billion was up 37% from the same period a year earlier. Its adjusted earnings increased 54% to $2.96 per share. The good news is that Qualcomm’s end markets will grow in the long run. Qualcomm had signaled at its investor day in November last year that its addressable revenue opportunity is on track to rise from $100bn to $700bn by the end of the decade.
More importantly, Qualcomm’s guidance to fiscal 2024 suggests its impressive growth rate is sustainable. The company expects revenue from the Qualcomm CDMA Technologies (QCT) segment to post a compound annual growth rate from the mid-teens through fiscal 2024, and expects its margins to remain stable. The QCT segment includes chip sales for the smartphone, IoT and automotive markets, and represents 86% of the company’s total revenue.
However, it will not be surprising to see Qualcomm’s largest segment grow at a faster rate thanks to strong growth in design achievements in the automotive market. The company recently announced that its potential automotive revenue portfolio increased to $30 billion from $19 billion at the end of the fiscal third quarter.
Meanwhile, other fast-growing niches like the metaverse and IoT should help the chipmaker maintain its strong growth rate. Assuming Qualcomm’s mid-teens revenue growth rate translates into a similar final growth rate of 15%, its earnings could rise to $19.09 per share in 2025. Multiply projected earnings after three years at Qualcomm’s five-year average earnings multiple of 26.8 would translate to a stock price of $511, which would be a 325% increase over the current stock price.
This also means that Qualcomm’s market capitalization could exceed $570 billion in 2025 versus the current level of $134 billion. Nvidia currently has a market capitalization of $309 billion and is surrounded by multiple headwinds, so the possibility of Qualcomm becoming a bigger company cannot be ruled out.
Advanced Micro Devices gains power from the data center market
AMD is another company that could be worth more than Nvidia after three years based on its current momentum and strong prospects.
Analysts forecast 26% annual earnings growth for AMD over the next five years. The chipmaker is expected to end 2022 with earnings of $4.35 per share. Applying the projected three-year growth rate to AMD’s final estimate for 2022 means its earnings could rise to $8.70 per share in 2025.
AMD’s average five-year forward earnings multiple is 39. Multiplying that with forecast earnings after three years would translate to a stock price of $339, which is five times the company’s current stock price. Furthermore, AMD’s current market capitalization of $107 billion indicates that it could become a $500 billion-plus company by 2025, eclipsing Nvidia in size if the latter doesn’t regain its charm.
There are multiple reasons why AMD could meet or even exceed analysts’ expectations for growth over the next three years.
Let’s start with the data center market. AMD sells both graphics cards and server processors used in data centers. Demand for these chips is healthy based on AMD’s Q2 2022 results. The company’s data center revenue rose a whopping 83% year over year in the most recent quarter to $1.5 billion. AMD has generated nearly $2.78 billion in revenue from the data center business so far this year, translating to an annual run rate of $5.5 billion.
However, AMD sees a $42 billion revenue opportunity in the long-term data center processor market. More importantly, it is impressively gaining market share in this space, which should help it sustain its excellent data center revenue growth over the long term. However, server processors are just one of many opportunities for AMD in the data center market.
Including graphics cards, field-programmable gate arrays (FPGAs), and data processing units, AMD estimates a huge $125 billion opportunity in the data center market. The good thing is that AMD is pulling the right strings to take advantage of these niches. The company’s acquisition of Xilinx, which was completed earlier this year, makes AMD a major player in the FPGA space.
As such, it looks like AMD is going to deliver solid long-term growth and could become a larger semiconductor stock than Nvidia thanks to the catalysts discussed above. Plus, buying the stock right now seems like a no-brainer, as its earnings multiple of 28 represents a huge discount compared to its five-year average multiple of 101.