Sell Nvidia, Buy AMD Stock?

Core Viewpoint - Nvidia has dominated the generative AI market, with its stock increasing by 180% this year, reaching a market cap of nearly $3.5 trillion, but its high valuation may limit future gains. In contrast, AMD offers a more attractive investment opportunity with a valuation of 28x forward earnings, benefiting from the AI growth trend and cost-effectiveness focus among customers [1][8]. Group 1: Nvidia's Market Position - Nvidia's revenue is projected to grow from $27 billion in FY'23 to almost $130 billion in FY'25, driven by its GPUs being the fastest for AI model training [3]. - The company has enjoyed high net margins exceeding 50% due to initial AI investments, but customers may become more cost-conscious, impacting Nvidia's pricing power [7]. - There are concerns that the growth in AI model training may not yield proportional improvements in capabilities, leading to potential reevaluation of spending by customers [4]. Group 2: AMD's Competitive Advantage - AMD's MI300X is competitive with Nvidia's H100 GPU in AI inference benchmarks, leading to significant orders from hyperscalers for AI workloads [5]. - The company reported a 118% increase in sales for its data center business, reaching $3.5 billion, driven by strong demand for AI chips [8]. - AMD's stock is trading at a more reasonable valuation of 28x projected FY'25 earnings, making it a more attractive investment compared to Nvidia's 48x multiple [8]. Group 3: Market Trends and Customer Behavior - The AI market may shift from model training to inferencing, which is less computationally intensive and could favor AMD's processors [5]. - Companies are increasingly focused on cost-effectiveness, seeking alternatives to Nvidia's high-priced GPUs, which can exceed $25,000 each [7]. - Oracle's decision to use AMD's accelerated computing chips for its supercluster highlights the growing preference for cost-effective solutions in AI workloads [7].