Nvidia Versus AMD. The Better Buy?

Summary

In this video, Adam analyzes the stock performance and fundamentals of Nvidia and AMD. He highlights Nvidia's stronger position in the AI-driven market with its dominant GPU business and higher growth potential, contrasting it with AMD's more diverse yet less robust offering. Despite AMD's drop in stock price, it remains overpriced relative to its intrinsic value. Adam concludes that Nvidia is the better investment, albeit not yet at a low enough price to buy. He emphasizes the importance of waiting for a better margin of safety before making a purchase.

Takeaways

• 😀 Nvidia is currently trading at $132, which is considered fairly priced based on its growth rate and valuation metrics.
• 😀 AMD's current stock price of $126 is significantly overvalued, with an intrinsic value of approximately $72 based on conservative growth estimates.
• 😀 Nvidia's growth is primarily driven by its dominance in AI and data centers, with its revenue from data centers growing at over 100%.
• 😀 AMD's growth is also concentrated in AI and data centers, but it has a much smaller share of its total revenue from this sector (51%), with other segments stagnant or declining.
• 😀 Nvidia's strong financials include high profitability and a wide economic moat, making it a more attractive investment in the long term.
• 😀 AMD's financial performance is weaker compared to Nvidia, with lower margins, inconsistent cash flow, and a narrower economic moat.
• 😀 The intrinsic value calculation for Nvidia suggests a fair price of around $130, which is close to its current market price, indicating it's not undervalued at the moment.
• 😀 AMD is overvalued by at least 25% based on an intrinsic value of $100 (optimistic growth projection), with its stock price significantly above its calculated value.
• 😀 Investors should be cautious about purchasing AMD at current prices, as its stock is overpriced relative to its intrinsic value and growth prospects.
• 😀 The speaker recommends buying more Nvidia only if the stock price drops further to around $110-$115, providing a better margin of safety for investors.
• 😀 The key takeaway is that while Nvidia is the stronger company, AMD's overvaluation makes it a less attractive investment at its current price point.

Q & A

What is the main focus of Adam's comparison between Nvidia and AMD in the video?

Adam compares Nvidia and AMD in terms of their business strength, growth potential, financial metrics, and stock valuations. He provides an analysis of their revenue, profitability, economic moat, and intrinsic stock values to help investors decide which company offers better investment opportunities.

Why does Adam consider Nvidia to be the stronger company compared to AMD?

Nvidia is considered stronger due to its dominance in the AI and data center markets, with 88% of its revenue tied to these fast-growing sectors. Nvidia also boasts superior profitability metrics, including higher return on equity (ROE) and return on invested capital (ROIC), and a broader economic moat.

How did Nvidia and AMD perform in the stock market recently?

Nvidia saw a significant 177% increase year-to-date but has since corrected by 13.7%. AMD, on the other hand, has experienced a 44% decline from its peak, making it a potentially more attractive option for those looking for a cheaper stock.

What percentage of Nvidia's revenue is tied to AI and data center growth?

88% of Nvidia’s revenue is tied to AI and data center growth, making it a key player in these rapidly expanding markets.

What is the projected growth rate for Nvidia, and how does it compare to AMD?

Nvidia’s projected growth rate is around 35.5% for the next 5 years, which is significantly lower than AMD’s 29.6%. However, Nvidia's stronger position in AI and data centers compensates for its relatively lower projected growth.

How does the profitability of Nvidia compare to AMD?

Nvidia significantly outperforms AMD in profitability metrics such as Return on Equity (ROE) and Return on Invested Capital (ROIC). Nvidia’s ROE is 127%, while AMD’s is just 3.26%. Nvidia’s higher margins make it a more profitable company overall.

What is the intrinsic value of Nvidia according to Adam's calculations?

Adam calculates Nvidia's intrinsic value at approximately $129.60. The current stock price is close to this value, meaning that Nvidia is fairly priced but not undervalued at the moment.

How does AMD's intrinsic value compare to its current stock price?

Based on a 29% growth rate, AMD’s intrinsic value is calculated at $72, while its current stock price is around $126.69, making it 76% overpriced. Even with a more optimistic growth projection of 39.4%, AMD’s intrinsic value is estimated at $100, still indicating overvaluation.

What role does the economic moat play in Adam's evaluation of Nvidia and AMD?

Adam places significant weight on the companies’ economic moats. Nvidia has a strong moat, scoring 9 out of 10, due to its brand loyalty, pricing power, and market leadership in GPUs for AI and data centers. AMD, in comparison, has a narrow moat, which limits its ability to compete effectively against Nvidia and Intel.

What is Adam's investment strategy regarding Nvidia and AMD?

Adam prefers Nvidia as a long-term investment but is waiting for a better entry point. Although Nvidia is fairly priced at $130, he is waiting for the stock to drop further before purchasing more. He believes AMD, despite being cheaper, is overpriced at current levels.