As the substitute intelligence (AI) revolution continues to realize steam, chipmakers Superior Micro Units (NASDAQ: AMD) and Qualcomm (NASDAQ: QCOM) have skilled extensively differing fortunes on the inventory market in 2024 to this point. Whereas one is outperforming the PHLX Semiconductor Sector index properly, the opposite one is lagging.
Extra particularly, Qualcomm inventory is up 45% to this point this 12 months, which is effectively above the 28% good points for the PHLX Semiconductor Sector index, as buyers are paying attention to the corporate’s strong place within the AI chip area of interest. AMD, in the meantime, gained simply 9% in 2024 regardless of beginning the 12 months on a optimistic word, as its enterprise is not getting as robust a lift from AI as Wall Road analysts had been anticipating.
Does this imply that Qualcomm is the higher AI inventory of the 2 to purchase now? Or will AMD’s latest product growth strikes assist it land a considerably larger share of the profitable AI chip market and switch its fortunes round?
The case for AMD
The marketplace for chips utilized in AI servers is rising quickly, however AMD got here late to the celebration. Nvidia is working away with this market with an estimated share of 90%. This explains why Nvidia’s information middle income within the first quarter stood at $22.6 billion, up a whopping 427% 12 months over 12 months.
AMD generated simply $2.3 billion in income from information middle chips within the quarter, although it’s price noting that this was up 80% from the year-ago interval. AMD credited this spectacular development to elevated gross sales of its Intuition line of information middle graphics playing cards, that are focused at AI workloads.
Additionally, when it launched its Q1 numbers in April, AMD elevated its 2024 forecast for AI-related information middle graphics processing unit (GPU) income to $4 billion, up from the sooner estimate of $3.5 billion it issued in January. Three months previous to that, AMD was forecasting its 2024 information middle GPU income would land at $2 billion. So, the corporate has doubled its income expectations from this market within the area of simply six months.
Nonetheless, it seems to be like buyers had been anticipating even larger numbers from AMD. That is not shocking, because it’s buying and selling at 12 occasions gross sales proper now, which is increased than the U.S. tech sector’s common price-to-sales ratio of seven.6. The chipmaker’s income forecast of $5.7 billion for the second quarter would quantity to a year-over-year enhance of simply 6%, which is not adequate to justify its wealthy valuation.
However then, it will not be shocking to see AMD elevating its AI income steering additional because the 12 months progresses. The corporate stands to realize from the growing AI chip manufacturing capability of its foundry accomplice. Moreover, AMD is seeking to seize an even bigger share of the AI chip market by launching new chips.
The corporate not too long ago unveiled its MI325X information middle GPU, which it says is 30% extra highly effective than rival Nvidia’s flagship Hopper architecture-based H200 chip. Additionally, AMD has now determined to launch a brand new household of AI accelerators yearly in order that it will possibly turn out to be extra aggressive.
On the similar time, the rising adoption of AI-enabled private computer systems (PCs) is now driving strong development in one other of AMD’s key enterprise segments. Its income from the consumer phase, which incorporates gross sales of central processing models (CPUs) utilized in desktops and laptops, elevated a strong 85% 12 months over 12 months to $1.4 billion within the first quarter.
AMD administration factors out that it’s going to have an enormous vary of AI-enabled PCs powered by its processors by the tip of the 12 months. This could permit the corporate to capitalize on a profitable development alternative; AI-enabled PCs are anticipated to account for 60% of PCs shipped by 2027 as in comparison with 19% this 12 months, based on market analysis agency Statista.
All this means that there’s a good likelihood that AMD’s AI-related enterprise will decide up, which might be the rationale why analysts predict its prime line to leap 28% in 2025 following a forecast achieve of 13% in 2024. So, the opportunity of AMD’s fortunes turning round due to AI can’t be dominated out.
The case for Qualcomm
Qualcomm, too, is sitting on a secular development alternative — in its case, due to AI within the smartphone market. Smartphone gross sales declined final 12 months amid weak demand, however the introduction of AI-enabled smartphones is predicted to set off a turnaround on this market, with IDC forecasting development of 4% this 12 months.
Counterpoint Analysis estimates that 100 million AI smartphones may very well be shipped this 12 months. Even higher, generative AI smartphone shipments are anticipated to see an annualized development fee of 83% by means of 2027, after they would hit 522 million models in shipments. The nice half is that Qualcomm has already began capitalizing on this area. Its Snapdragon processors are powering on-device AI capabilities in Samsung’s flagship Galaxy smartphones.
Moreover, Qualcomm’s income from Chinese language smartphone producers elevated 40% 12 months over 12 months within the first half of 2024. Extra importantly, Qualcomm is pushing the envelope within the AI smartphone market by launching extra chips that can permit it to develop past top-tier smartphones and goal the mid-range smartphone market as effectively. Not surprisingly, Counterpoint Analysis expects Qualcomm to dominate the marketplace for AI smartphone chips with a market share of greater than 80% over the subsequent couple of years.
On the similar time, Qualcomm has set its sights on the AI PC market. Throughout its Might earnings convention name, CFO Akash Palkhiwala stated that every one the main PC producers are going to launch “next-generation AI PCs powered by our Snapdragon X Elite and X Plus platforms” beginning in mid-2024. Microsoft already introduced PCs powered by Qualcomm chips. Because of this, there’s a good likelihood that Qualcomm’s development is ready to speed up.
The corporate’s income within the second quarter of its fiscal 2024 (which ended on March 24) was virtually flat 12 months over 12 months at $9.4 billion. Analysts, nonetheless, predict the corporate to complete its fiscal 12 months with a 7.2% enhance in income to $38.4 billion. In fiscal 2025, Qualcomm’s prime line is forecast to leap by simply over 10% to $42.3 billion.
These estimates, nonetheless, may very well be revised increased as soon as the adoption of AI-enabled smartphones and PCs begins gaining vital mass, suggesting that Qualcomm may stay a prime AI inventory sooner or later.
The decision
Each AMD and Qualcomm are on observe to reap the benefits of profitable AI niches. However whereas AMD is struggling to realize market share towards its larger rival in chips for AI servers, Qualcomm is the dominant participant within the smartphone chip market.
Additionally, AMD’s steep gross sales a number of of 12 and trailing earnings a number of of 230 make the inventory an costly funding proper now with respect to the expansion that it has been delivering. Its ahead earnings a number of of 49 can be fairly wealthy.
Qualcomm, alternatively, trades at simply 6.4 occasions gross sales. It has a trailing earnings a number of of 27, and its ahead earnings a number of of 18 factors towards the expectation of a pleasant bounce in its backside line. So buyers trying so as to add an AI inventory to their portfolios could also be tempted to purchase Qualcomm over AMD, on condition that it’s approach cheaper and enjoys a dominant place within the fast-growing AI smartphone area.
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Harsh Chauhan has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Superior Micro Units, Microsoft, Nvidia, and Qualcomm. The Motley Idiot recommends the next choices: lengthy January 2026 $395 calls on Microsoft and brief January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure coverage.
Higher Synthetic Intelligence (AI) Inventory: AMD vs. Qualcomm was initially revealed by The Motley Idiot
