Investors in some of the largest semiconductor stocks have no reason to complain this year. After a brief dip during the March dip, stocks skyrocketed as demand for chipmaker products soared, driven by the gaming and cloud computing segments and the global work-from-home environment.
However, since its peak in early September, this powerful sector rally has shown signs of slowing down. Beyond general risk aversion to growth stocks, the escalating US-China technology war is one of the biggest dangers that could derail these gains, as both countries impose export restrictions, primarily targeting semiconductor manufacturers.
Below we discuss the biggest winners in 2020 – Advanced Micro Devices (NASDAQ 🙂 and NVIDIA (NASDAQ 🙂 – to analyze which one could be a better buy if we see a decline in their values ??during the final stage of market volatility
AMD: Expanding Market Share
After dropping about 15% in September, AMD stock is back in demand this month.
This pattern of strong buys on the dip is not uncommon for this powerful player in the chip industry.
Supported by increased demand for server chips, the company expects the third quarter to be approximately $ 2.55 billion. AMD also expects sales to grow by approximately 32% this fiscal year, thanks to the power of PC, gaming and data center products.
Also fueling the momentum, AMD is expected to be in a good position to take advantage of the weakness of one of its main competitors: Intel (NASDAQ :). After decades lagging behind Intel, the world's largest chip maker, AMD has been catching up in recent years, aided by advancements at Taiwan Semiconductor Manufacturing (NYSE :), which makes chips on their behalf. That outsourcing strategy helped AMD at a time when Intel was facing a series of manufacturing setbacks and repeatedly lagged behind in introducing new chips.
While these favorable developments are strongly reflected in AMD's stock price, which rose 85% this year, some analysts believe there is more upside potential. Which means any weakness is a buying opportunity.
According to Cowen analysts, AMD is well positioned to take advantage of Intel's missteps and its shares could reach $ 100, representing a potential 20% advantage. AMD shares closed at $ 86.15 yesterday, a 5.3% gain on the day.
Cowen also says there is a major emerging game cycle with the next generation of video game consoles about to be released, leaving room for a new player to challenge NVIDIA's deep-rooted GeForce PC gaming chip franchise . Microsoft's Xbox Series X (NASDAQ 🙂 and Sony's PlayStation 5 (NYSE 🙂 will each include a powerful AMD processor.
Demand for such products is likely to increase as the holiday season approaches, and the COVID-19 pandemic continues to force people to stay at home.
NVIDIA: Gaming Strength, Rich Valuation
A strong and impressive rally in NVIDIA stocks during the current global health crisis clearly separates these chip stocks from the crowd. Shares of NVIDIA are up more than 130% this year and have vastly outperformed the market, which is up about 23% since the start of 2020. They closed at $ 545.70 yesterday, a 4.44% gain on the day itself .
While the Santa Clara, California-based chipmaker is unlikely to escape any slowdown in demand from cyclical industries such as automobiles, analysts are focusing on the company's deliveries to gaming and data center customers.
NVIDIA is the largest manufacturer of graphics chips used in PC gaming. In recent years, the semiconductor manufacturer has successfully adapted its technology to the artificial intelligence market, creating a multi-billion dollar new company.
Last month, NVIDIA moved to further strengthen its position in the AI ??market when it closed SoftBank Group & # 39; s chip division ARM Ltd. for $ 40 billion. ARM's technology is at the heart of the more than 1 billion smartphones sold annually. Chips using the code and layouts are in everything from factory equipment to home electronics.
Most of the business still comes from PC gaming, where NVIDIA graphics chips create the most realistic experiences. Premium GeForce components cost more than many consumers spend on an entire PC.
Last month, NVIDIA released its new graphics chips, GeForce RTX 3090, which are said to double the performance of their predecessors and provide gamers with more realistic visuals at the speed they demand.
After the stock boom this year, NVIDIA is now one of the most highly regarded chip stocks with a price-earnings ratio of 95, more than twice the semiconductor group average of 30. That makes the share sensitive. correct for any negative surprise, especially when the economic and geopolitical environment remains fragile.
Wedbush analyst Matt Bryson, who last week raised the stock price target from $ 525 to $ 600, also raised valuation concerns and took the stock off the top ideas list.
Bottom Line
Both AMD and NVIDIA are in great growth mode and can continue to perform. If you have to choose between the two, AMD is a safer choice, given analysts' concerns about NVIDIA's rich valuations.
That said, long-term investors can wait on the sidelines for a better entry point as current market volatility could lead to more weakness.
