SMCI, NVDA, or AMD: Which Chip Stock Is Worth Watching?
Three major chip stocks—AMD, SMCI, and NVDA—are under scrutiny for investment potential. AMD shows growth but has a high P/E ratio of 183.47, indicating possible overvaluation. SMCI is more attractively valued with a P/E of 22.74 but faces legal challenges. NVDA, a leader in AI, has a P/E of 54.46 and shows strong revenue growth but also appears overvalued. All three stocks are rated as "Hold" due to high valuations and associated risks, with investors advised to monitor upcoming earnings reports and market conditions.
When it comes to investing in chip stocks, three major players—Super Micro Computer, Inc. (NASDAQ:SMCI), NVIDIA Corporation (NASDAQ:NVDA), and Advanced Micro Devices, Inc. (NYSE:AMD)—are constantly on investors’ radars. But which stock is worth watching now? By breaking down the numbers and considering the latest developments, we can assess which of these stocks presents the best opportunity.
Advanced Micro Devices, Inc. (NYSE:AMD)
AMD has seen significant growth, with a market cap of $252.40 billion. However, the stock’s price-to-earnings (P/E) ratio of 183.47 signals that it may be overvalued. While this high P/E ratio suggests that investors are banking on future growth, it also raises concerns for value investors. The stock’s intrinsic value, based on a discounted cash flow (DCF) analysis, is $72.30—far below its current price, pointing to a potential overvaluation risk.
Despite this, AMD is showing strength in key areas, particularly in the data center and AI sectors. These sectors are critical for future growth, as AMD continues to innovate in AI technology and secure partnerships in the data center space. With cash reserves of $5.3 billion and upcoming earnings set to be announced on October 29, 2024, AMD could see short-term volatility.
The stock is currently rated as a "Hold," with analysts’ target prices ranging between $169.67 and $180. While AMD has promising long-term prospects due to the high demand for AI and data center solutions, its high valuation metrics indicate caution for investors in the short term.
Super Micro Computer, Inc. (NASDAQ:SMCI)
SMCI has a market capitalization of $26.78 billion and a P/E ratio of 22.74, which makes it much more attractive from a valuation perspective than AMD. Its earnings per share (EPS) of $20.11 also highlight strong profitability. Intrinsic value projections suggest a potential upside, with a median target of $600 and a high target of $1,500 if market conditions improve.
However, SMCI faces significant challenges. Allegations of accounting irregularities and ongoing class-action lawsuits pose serious risks to investor confidence. These legal battles, coupled with a significant stock pullback over the last six months, have dampened enthusiasm for the stock. Management’s strong growth projections are promising, but the legal issues cast a shadow on its future.
Given these concerns, SMCI is also categorized as a "Hold." While its long-term potential in the server industry remains strong, the immediate risks from lawsuits and declining investor sentiment make it a risky bet for now. Investors may want to watch for clearer signs of resolution before committing significant resources.
NVIDIA Corporation (NASDAQ:NVDA)
NVIDIA has become synonymous with growth in the AI and data center markets, boasting a market cap that dwarfs its competitors. The company’s EPS of $2.13 and P/E ratio of 54.46 are higher than SMCI but considerably lower than AMD’s, reflecting the market’s high expectations for future growth. NVIDIA has shown impressive revenue growth, particularly in its data center segment, where demand for AI and networking chips continues to soar.
Yet, like AMD, NVIDIA appears overvalued. Its intrinsic value is calculated at $64.68, far below its current stock price, suggesting that the market is pricing in growth that may be difficult to sustain. With an upcoming earnings report on November 19, 2024, the stock could experience volatility in the short term.
Recent insider selling by CEO Jensen Huang has also raised concerns, although it only represents a small portion of his holdings. The high valuation and institutional selling indicate that some caution is warranted despite the company’s long-term growth prospects. Similar to AMD and SMCI, NVIDIA is categorized as a "Hold" for now, as investors await more clarity from the next earnings report.
Conclusion
All three chip stocks—AMD, SMCI, and NVIDIA—offer promising long-term growth potential, particularly in AI and data centers. However, each stock comes with its own set of risks, mainly due to high valuations and other external factors like litigation (in SMCI’s case) or insider selling (in NVIDIA’s).
Investors should watch for earnings reports and broader market conditions before making any significant moves.
