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Better Buy NVIDIA vs. AMD The Motley Fool
Leo is a tech and consumer goods specialist who has covered the crossroads of Wall Street and Silicon Valley since 2012. His wheelhouse includes cloud, Io T, analytics, telecom, and gaming related businesses. Follow @TMFSun Lion have been two of the hottest semiconductor stocks of 2020. Both stocks more than doubled, and easily outpaced the Philadelphia Semiconductor Index's gain of roughly 50%.
But should investors expect NVIDIA and AMD to continue outperforming the broader semiconductor market next year? Let's take a fresh look at both chipmakers, and see if one is a better buy than the other. NVIDIA generates most of it revenue from discrete (add-in) GPUs for PCs and data centers. A smaller percentage of its revenue comes from its Tegra CPUs, which power connected vehicles, its Shield gaming devices, the Nintendo Switch, and other gadgets.
The Tegra competes against similar ARM-based CPUs from Qualcomm and Media Tek. It generally doesn't compete against AMD and Intel's more powerful x86 CPUs, which mainly power PCs and servers.
NVIDIA agreed to buy ARM earlier this year, which will help it collect higher-margin licensing revenue from other ARM chipmakers. It also closed its acquisition of networking gear maker Mellanox earlier this year to strengthen its bundling capabilities in the data center market. AMD generates more than two-thirds of its revenue from its CPUs for PCs and discrete GPUs.
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Its mainly competes against Intel and NVIDIA, respectively, in those two markets. The rest of AMD's revenue mainly comes from its Epyc CPUs for data centers, which compete against Intel's Xeons, and its custom chips for Sony and Microsoft's latest consoles. AMD agreed to buy Xilinx , a maker of FPGAs (field programmable chip arrays), earlier this year. That deal hasn't closed yet, but it would counter Intel's takeover of Xilinx's rival Altera in 2015. Both acquisitions complement AMD and Intel's data center businesses, since FPGAs can be reprogrammed to complement CPUs and accelerate demanding tasks like AI and machine learning. The pandemic generated tailwinds for both NVIDIA and AMD. Demand for gaming GPUs rose as new graphically demanding games arrived and stay-at-home measures prompted people to play more video games.
The rise of remote work and online education throughout the crisis sparked a wave of fresh PC upgrades, especially in the laptop market, which boosted demand for mobile CPUs and GPUs. The surging usage of cloud services also pushed carriers to upgrade their data centers, while demanding AI tasks supported sales of high-end GPUs -- which processed those tasks faster than stand-alone CPUs.