AMD & NVIDIA: Top Growth Stocks to Buy For Any Portfolio

article Investing

AMD & NVIDIA: Top Growth Stocks to Buy For Any Portfolio

article Investing

Gone are those days when tech stocks were speculative picks. With the advancement of time and ground-breaking technological developments, the tech field has significantly widened its grip. When talking about top picks in the tech field, AMD and NVIDIA are popular among investors. Let’s find out more about them and whether they are suitable for you or not.  

In 2020, NVIDIA and Advanced Micro Devices or AMD stocks have delivered staggering performance and set the tech market on fire. Despite the immense economic hardships due to the COVID-19 pandemic, the stocks of both chipmakers stayed well-positioned. That is why various investors are looking for NVIDIA and AMD stocks to add to their portfolios. 

In this post, we will throw some light on why NVIDIA and AMD stocks are the top growth stocks to bring extensive positive results. But before we move further, let’s dive into the history of these giants!

Brief History of AMD

AMD was a semiconductor corporation in 2000. Most of the designs of AMD’s CPUs used to come from Intel, the company which eventually perceived AMD as a potential threat and later denied giving its designs to AMD. This compelled AMD to build their CPUs, which itself brought many challenges to the company because of the complexity and need for significant time. 

In 1996, AMD released its first original CPU named K5. By 1999, the company had acquired NexGen, which was a revolutionary change and which led to the production of the K7 chip. In 1998, the net sales of the company reached $2.5 billion and by 2000, it was at $4.6 billion. However, when Lisa Su, the former president and CEO of AMD entered the company, it was like a new birth. She followed a long-term approach and implemented highly effective strategies to mitigate debt. Her primary focus was on manufacturing computer gaming, designing effective processors, and increasing the compatibility of the cloud as well as data centers. The company today is one of the most successful CPU corporations in the world and is still creating milestones. 

Brief History of NVIDIA

Holding a strong idea that ‘one day PC would become a popular device for playing multimedia and games’, NVIDIA was founded in 1993. Three American computer scientists: Jensen Huang, Chris Malachowsky, and Curtis Priem founded NVIDIA. In 1997, NVIDIA launched the RIVA series of graphic processors that dominated the computer gaming industry. After two years, the company launched its one more phenomenal product, GeForce 256 GPU that offered superior quality of 3-dimensional graphics. In 2000, the company purchased the remaining assets of 3dfx Interactive. The year 2000 also marks a stepping stone for the company as Microsoft Corporation chose to develop graphic cards for the Xbox video game console. To honor the significant growth and success of NVIDIA, Forbes titled the company as “Company of the Year” in 2007. 

Therefore, we can say that by carrying out a plethora of architectural updates as well as manufacturing improvements, both the companies continued to iterate successfully for the later years. 

The Rise of Stock Prices

A few years ago, AMD was on the verge of bankruptcy with a net loss of $7 billion. By 2015, the company’s share price fell dramatically to below $2 per share. However, if we look at today’s statistics, the AMD stock price has reached over $90, which means that the price has been increased by 5000% within a fraction of 5 years. Today, AMD possesses a large market share in the world.

Similarly, a significant rise has also been seen in Nvidia’s stock price from $192 in 2017 to $235 in 2019. This was primarily due to the 12% growth in revenue and a 1.36x expansion in the PE. In 2020, the company started trading at below $240 per share and the level significantly dropped to $196 per share in March. However, in early September, the stock reached a ground-breaking record of $589 per share. 

Why Are NVIDIA & AMD Stocks Top Growth Stocks?

Although there are myriad reasons why the stocks of these two chipmakers are a great pick right now, the five major reasons are:

 

  • Quality Growth Drivers

 

In the last quarter, NVIDIA’s video gaming business computed for 48% of its revenue and the sales showed an increase of 37% year over year. Similarly, AMD stocks (of computing and graphic segments) accounted for approximately 60% of the total revenue, thus showing an impressive increase of 31% in quarter 3. 

If we talk about the current conditions of both companies, they have immense potential to sustain momentum. Due to the recent launches of new gaming consoles from Sony and Microsoft, AMD’s semi-custom revenue has significantly risen. Besides, AMD is dominating the market share in the field of CPU as compared to Intel. On the other hand, NVIDIA is showing significant growth in its data center business every quarter. Due to the rising demand for artificial intelligence applications and other high-level computing operations, NVIDIA’s data center business has a great scope for growth and development. 

  • Growth Of Earnings

 

Investors always prioritize double the earnings so that they can hike the profit levels. In this regard, just look at the historical EPS growth rates for both the companies:

  • AMD: 80.2%
  • NVIDIA: 34.2%

This year, AMD and NVIDIA’s EPS is estimated to grow by 72.5% and 67.8% respectively, thus beating the industry average.  

  • Growth In Cash Flow

 

Cash flow is calculated by deducting capital expenditure from operating cash flow. It is a measure of financial performance that serves as a lifeline for any business. Higher cash flow allows the company to carry out the growth-oriented expansion of its business. If we look at the cash flow of both the giants we’ll find it in a state of growth. 

In 2020, the annual cash flow of NVIDIA was $4.272 billion, which is 35.92% more than that of 2019. In 2019, it was $3.143 billion, which was 7.97% more than that of 2018. In 2018, it was $2.911 billion, which was 93.68% more than that of 2017. 

Similarly, for AMD stocks, the cash flow right now is 44.8%, which is quite higher than its rivals. However, the performance in the past is not so satisfactory. Let’s have a look at the past cash flows of the company:

  • 2019: $0.276 billion (decreased by 313.95% form 2018)
  • 2018: $-0.129 billion (increased by 27.72% form 2017)
  • 2017: $-0.101 billion (decreased by 2625% form 2016)

Although NVIDIA showed consistent growth in cash flow over the past 3-5 years, AMD stock performance was not up to the mark. 

Therefore, choosing NVIDIA stocks while considering the cash flow growth would not be wrong.

  • Asset Utilization Ratio

 

The Asset Utilization Ratio reflects how well the company is using its assets to generate quality sales. In the third quarter of 2020, the asset utilization ratio of AMD increased to 1.36. NVIDIA has an asset utilization ratio of 0.64 right now. If we will compare this ratio to the industry average of 0.62, we can say that both companies are highly efficient.

  • Trends In Earnings Estimate Revisions

 

In order to measure the superiority of a particular stock, an investor should also look at the trends in earnings estimate revisions. AMD’s earnings estimate has risen to 0.1% over the past few months. Similarly, NVIDIA’s earnings estimate has been rising upwards. For the current year, the figure has surged 1% over the past few months. 

Such positive trends in Earnings Estimate Revisions reflect the significant stock price movements in the future. 

The Bottom Line

Both NVIDIA and AMD stocks could bring you higher returns. With multiple tails extending their businesses, both the companies could reach higher in terms of share prices. The increasing tech demands and evolving tech industry makes both of these stocks worth holding to breakneck the growth. 

But when it comes to making the right investment, you cannot overlook the importance of professional assistance!  This is where Wealthface comes in! With a dexterous crew of financial advisors, we may help consumers to build their investment portfolio without breaking their bank while eliminating potential risks. So, contact us right away! 

Wealthface smart financial tools will help you shape your financial future.
Check out this graph of our aggressive portfolio
wealthface share Share this article to social media
Wealthface - Your online investment solution
Wealthface is a one-stop online investment company that services all kinds of investors. It provides affordable high-quality investment products and services, tailored to each type of investor, and delivered at a low cost in a fully transparent manner. The company plays the role of a Fiduciary investment advisor, which means it always puts the client’s interest first.