Better Buy: Advanced Micro Devices vs. Nvidia

Tech stocks have been hit hard in 2022, with the NASDAQ-100 Technology Sector the index is down 33% year to date. Multiple companies have taken significant hits to their shares, with nvidia (NVDA 0.82%) 54% less and advanced micro devices (AMD -0.95%) 45% discount in the same period. As key players in the computer graphics market, these companies are often stacked against each other, so it’s only natural for investors to wonder which is the better buy.

Tech stocks have fallen out of favor in 2022 as rising inflation and fears of a recession slowed consumer spending. However, they won’t be down forever, which makes them excellent stocks to buy and hold. Although Nvidia and AMD are attractive stocks for investors looking to hold long-term, one of them is superior. Let’s evaluate.

Nvidia: leader in graphics

Nvidia’s 29 years in business have made it a leader in graphics processing units (GPUs), used in gaming, cryptocurrency mining, professional applications, and more. The company also designs chip systems for automotive and robotics products. Nvidia flourished during the pandemic, with its shares soaring 541% between March 2020 and November 2021, when it hit an all-time high. However, tech stocks have lost 58% from their November high as investors have lost faith in the company’s stability.

The semiconductor company suffered a disappointing fiscal second quarter. Revenue fell 33% year-over-year to $2.04 billion as consumer demand for its gaming GPUs dropped significantly. Games are Nvidia’s second largest segment, accounting for 30% of the company’s revenue in the second quarter.

As a result, declining demand for its gaming GPUs has hit the company hard, and its Q3 guidance hasn’t done much to attract investors. The chipmaker expects to generate around $5.9 billion in revenue next quarter, down 15% from a year earlier, thanks to declining GPU sales and shrinking of the professional display segment.

AMD: Strength in Diversification

While Nvidia posted substantial losses in its second quarter, AMD boasted a 70% increase in revenue year over year. The increase was primarily driven by a 32% increase in gaming revenue. The stark difference between the companies’ gaming segments stems from the difference between the PC and console market for gaming. Nvidia’s gaming revenue is made up of GPU sales to PC gamers, with a portion coming from providing chips to NintendoSwitch console.

AMD’s segment is much more diverse, with revenue coming from sales of GPUs for PCs and semi-custom offerings for consoles like Microsoft‘s (NASDAQ: MSFT) xbox, Sony‘s (NYSE:SONY) playstation, and Valvesteam cover of .

In 2021, the Nintendo Switch sold 8.2 million units, while the Xbox Series X|S sold around 8.7 million and the PlayStation 5 sold 11.5 million. AMD’s rising gaming revenue shows that its ability to diversify the segment has worked in its favor.

The PC market is in a recession, and multiple tech companies are feeling the effects. Despite significant revenue gains in its second quarter, AMD’s third-quarter revenue projection of $6.7 billion versus analysts’ expectation of $6.81 billion due to declining PC demand made that its shares fell 10.2% in August.

However, its gaming segment is not the only part of its business strengthened by its diversification. While Nvidia’s business is 30% gaming and 56.7% data center, AMD’s is divided much more evenly among its four segments. In Q2 2022, AMD revenue was 22% from data centers, 32.8% from clients, 25% from gaming, and 19% from embedded products.

There is no doubt that Nvidia and AMD have suffered at the hands of the declining PC market. However, AMD seems better able to shore up its business with its other segments. Nvidia’s reliance on PC sales and volatility in the cryptocurrency market make it a less reliable stock.

Additionally, AMD said on a 2022 earnings call that it had gained market share for nine consecutive quarters, having taken share from Intel, illustrating its growing dominance in the market. Its steady growth and variety of successful segments suggest that AMD is a better buy than Nvidia.

dani cook has no position in any of the mentioned stocks. The Motley Fool has positions and recommends Advanced Micro Devices, Microsoft and Nvidia. The Motley Fool has a disclosure policy.

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