Advanced Micro Devices (NASDAQ: AMD) has a potent role in tech, supplying its chips to corporations across the industry. Its hardware powers every part, from video game consoles to cloud platforms, consumer-built personal computers, laptops, and AI models. Because of this, AMD formed lucrative partnerships with corporations like Microsoft (NASDAQ: MSFT), Sony, and Meta Platforms.
AMD’s success through the years saw its revenue and operating income increase by 224% and 45%, relatively, since 2019. Meanwhile, its stock climbed by 384% within the last five years. The corporate boasts a protracted growth history and has a solid outlook because it expands into high-growth sectors like AI.
Nonetheless, a rally over the past yr and a business that has only recently begun seeing returns on its significant investment in AI means its stock is not exactly a bargain.
When you concentrate on the price-to-earnings (P/E) ratios of among the most outstanding names in AI, including three chipmakers and two leading cloud providers, AMD has the best P/E amongst these corporations, indicating its stock offers the least value.
AMD’s P/E might prove inconsequential over the long run, as the corporate’s stock will likely proceed rising because the tech industry expands. Nonetheless, for anyone in search of bargains, it is likely to be best to avoid AMD for now.
So, forget AMD this month and consider buying these two tech stocks as an alternative.
1. Nvidia
Nvidia (NASDAQ: NVDA) is not a screaming value with a P/E of 74. Nonetheless, its stock stays a compelling option with a lower P/E than its rivals, AMD and Intel, and a majority market share in AI.
Chip stocks are among the finest ways to take a position in tech, with their hardware crucial to the industry’s development. Advances in chip technology bolstered countless markets over the past decade, encouraging innovation in cloud computing, virtual/augmented reality, data centers, consumer tech, gaming, and more. Because of this, chip demand has skyrocketed lately.
As leading chipmakers, Nvidia and AMD enjoyed solid gains over the past half-decade because of increased chip sales. While each corporations have delivered stellar growth, it’s hard to disregard how much higher Nvidia’s earnings and share price have risen in comparison with AMD’s. Nvidia’s has also proven to be more reliable, with its earnings and stock steadily trending up, while AMD experienced more volatility.
Nvidia’s success is principally attributable to its dominance in graphics processing units (GPUs), that are high-performance chips able to completing multiple tasks concurrently. GPUs are critical for training AI models and powering data centers. Consequently, the AI chip market is projected to hit $71 billion this yr, with Nvidia’s hardware accounting for an estimated 90% of the industry.
Nvidia has a solid role in tech, and its business will likely proceed expanding as demand for its chips rises. This yr, the corporate reached $39 billion in free money flow, significantly outperforming AMD’s just over $1 billion. Nvidia has the financial resources to proceed investing in AI and maintain its lead. Meanwhile, its better-valued stock makes it a no brainer right away.
2. Microsoft
When investing in tech, it’s a very good idea to diversify your holdings in software and hardware. While Nvidia is a superb option for securing a position within the hardware side of the industry, Microsoft has years of experience dominating software. Home-grown products like Windows, Office, Xbox, Azure, and LinkedIn have helped the corporate construct an enormous user base and a robust role in tech.
Since 2019, Microsoft delivered less earnings and share price growth than AMD. Nonetheless, like Nvidia, Microsoft has been way more consistent, making it a less dangerous investment. Because of this, the corporate’s stock is potentially a greater long-term hold.
Microsoft’s reliability is principally attributable to its thoroughly diverse business model. The corporate has leading positions in multiple tech areas, from productivity software to operating systems, video games, social media, cloud computing, and digital promoting.
Furthermore, Microsoft isn’t still for long, consistently reinvesting in its business and in search of out recent growth markets. The corporate’s commitment to innovation saw it turn out to be an early investor in AI, sinking $1 billion into ChatGPT developer OpenAI in 2019. That figure has since risen to about $13 billion, with the powerful partnership giving Microsoft access to among the most advanced AI software.
Meanwhile, Microsoft has already begun seeing earnings boosts from AI, because of recently launched AI solutions on its cloud platform, Azure, and paid-for features in Office. In fiscal 2024 (ending in June), Microsoft’s revenue increased by 16% yr over yr, while operating income soared 24%. The period benefited from a 20% rise in cloud sales and a 12% increase in its productivity and business processes segment, with each divisions expanding their AI offerings.
Microsoft’s diverse business provides it with countless ways to monetize its AI enterprise. Alongside $74 billion in free money flow and a better-valued stock, it’s value picking up Microsoft over AMD this August.
Must you invest $1,000 in Nvidia right away?
Before you purchase stock in Nvidia, consider this:
The Motley Idiot Stock Advisor analyst team just identified what they consider are the 10 best stocks for investors to purchase now… and Nvidia wasn’t one among them. The ten stocks that made the cut could produce monster returns in the approaching years.
Consider when Nvidia made this list on April 15, 2005… when you invested $1,000 on the time of our suggestion, you’d have $720,542!*
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Idiot’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Advanced Micro Devices, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Idiot recommends Intel and recommends the next options: long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short November 2024 $24 calls on Intel. The Motley Idiot has a disclosure policy.
Forget AMD: 2 Tech Stocks to Buy As a substitute was originally published by The Motley Idiot