AMD Rallies After Earnings. Will Nvidia Follow Suit?
As the AI chipmaker roars higher, how will Nvidia react to its upcoming earnings report?
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On Tuesday, shares of Advanced Micro Devices (AMD) jumped 4% during regular market hours, to close at an all-time high. Then the AI chipmaker reported first-quarter earnings, and climbed an additional 15%.
Santa Clara-based AMD earned $1.37 per share, beating analysts’ estimates of $1.29. Revenues came in at $10.2 billion, ahead of estimates of $9.9 billion.
CEO Lisa Su commented that AMD was seeing “...accelerating demand for AI infrastructure, with Data Center now the primary driver of our revenue and earnings growth.”
AMD vs. Nvidia: Valuation
AMD’s numbers were solid, but do they justify the stock’s lofty valuation? The stock traded at over 136x 12-month trailing earnings prior to Tuesday's earnings report.
Compare that to Broadcom (AVGO) , which trades with a trailing P/E ratio of about 83. Meanwhile, Nvidia (NVDA) trades at about 40x trailing earnings.
It’s incredible to think that after Nvidia shares gained 1,226% over the past five years, growing into a $4.77 trillion mammoth, the stock is still inexpensive relative to its peers.
AMD vs. Nvidia: Technicals
Nvidia’s valuation may be easier to stomach, but the charts favor AMD right now.
Shares of AMD have gained 61% in the past month — and that was before the company reported earnings on Tuesday. It’s fair to say that Wall Street was anticipating a solid first-quarter earnings report.
AMD shares were trapped in a six-month consolidation (shaded yellow) before breaking out on April 16 (point A). Since then, the shares have gained about 45%. AMD’s RSI (relative strength index) has been overbought since the breakout (shaded blue).
In comparison, Nvidia shares have climbed 10% over the past month. Not bad, but not spectacular. Year-to-date, Nvidia has gained just 4%, slightly underperforming the broader market.
Nvidia also broke out of a multi-month consolidation (shaded yellow) on April 16 (point A). However, after reaching an all-time closing high of $216 on April 27 (point B), Nvidia has fallen back into that consolidation range. On Tuesday, the stock closed at a three-week low.
Multiple Winners
AMD has had a solid quarter. It’s clear that Wall Street had a strong positive outlook for the stock, based on how high the stock ran prior to earnings.
However, I’m concerned about Nvidia. It’s being outperformed by AMD, up 61% over the past month, and by Broadcom, which has gained 36% over the past month. Institutional investors seem shy about committing further capital to Nvidia right now.
Nvidia could still have a great quarter, but the lack of aggressive buying on the part of institutional traders, especially as they scoop up AMD and Broadcom, is concerning.
There will be multiple winners in this market, so we’re continuing to hold AMD, Broadcom, and Nvidia. Nvidia is scheduled to report in two weeks, after the close on May 20.
Related: Should You Set Money Aside for SoftBank’s New AI Play?
At the time of publication, Ponsi was long AMD, NVDA, and AVGO.
