This year has certainly been the year of the chip stock. Semiconductor makers AMD (NASDAQ:AMD) and Qualcomm (NASDAQ:QCOM), as well as industry leaders Nvidia (NASDAQ:NVDA) and former leader Intel (NASDAQ:INTC) continue to inspire plenty of discussion among investors in terms of which company will come out ahead. For now, Nvidia appears to be pulling further away from the pack, with its high-performance GPUs the chips of choice for companies developing large AI models and applications to serve their customers.

However, AMD and Qualcomm are among the two chip makers I think are worth diving into more deeply, as these companies vie for market share in the medium-end of the market. AMD is viewed more closely as an Nvidia competitor, while Qualcomm’s focus is mainly on smartphone chips. However, the overall market share picture for both companies remains murky, and that’s where I think there can be some possible valuation disconnects worth diving into.

Let’s compare and contrast these two companies and come to a conclusion about which is the better chip stock to buy.

Key Points About This Article:

• The semiconductor sector is one that’s as diverse as it is competitive, with the overall market share picture for many top players remaining murky.
• Here’s a comparison of AMD and Qualcomm, and which is the better chip stock to buy right now.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

Advanced Micro Devices (AMD)

AMD is certainly among the high-performance chip makers many investors have looked to for growth. And while the company has certainly seen some strong top and bottom-line growth over the past year, the fact that Nvidia is leading the pack in the AI chip race has meant less investor attention on this name. That’s also meant that AMD stock has lagged its semiconductor peers, posting year-to-date gains of only 6% at the time of writing, a very wide chasm when one looks at Nvidia’s relative performance this year.

Now, that means the company’s valuation hasn’t expanded to the same degree, and at a market capitalization of around $250 billion, AMD is still a company that’s less than one-tenth the size of Nvidia. So, the question many investors have about this name is what the competitive landscape might look like a few years down the road.

If AMD can gain market share via its new chip launches, including the company’s new MI325X AI chip, there are some investors out there who believe AMD can turn into a potential competitor to Nvidia and the company’s Blackwell platform over the long-term. Of course, if Nvidia continues pulling away from the pack, this may not be the case. We’ll have to see.

I think investors will be able to glean more information about this thesis when AMD reports its Q3 2024 results, expected on Oct. 29. For now, this is a stock to watch closely when it comes to potential AI beneficiaries. 

Qualcomm (QCOM)

Qualcomm is well-known for smartphone processors, holding 31% of the market in Q2 2024. Impressively, this market share number is actually up from 29% the previous year, narrowing the gap with leader MediaTek at 32%. AI advancements have boosted Qualcomm’s position, with it projected to capture nearly 50% of the AI smartphone processor market by 2027, far ahead of MediaTek’s 13%. Qualcomm’s chips power devices like Samsung’s Galaxy S24 and have gained traction in China, where its Q3 2024 revenue rose 50% year-over-year.

Qualcomm is expanding beyond AI smartphones into AI-enabled PCs. Notably, the. company already powers over 20 AI-capable PC models from brands like Microsoft, Dell, and Lenovo. Looking ahead, Qualcomm is collaborating on 2025 models designed to run generative AI locally. With AI PC sales projected to grow 165% next year and 43% of all PCs expected to be AI-capable, Qualcomm is positioning itself to tap into this expanding market.

Qualcomm’s revenue for the first nine months of fiscal 2024 grew nearly 6%, with Q3 alone showing 11% growth. Expenses rose just 2%, while $768 million in investment income boosted net income to over $7.2 billion, a 26% increase. Despite a spring sell-off, the stock is up 55% over the past year, with a price-earnings ratio of 22. That’s relatively low for major semiconductor firms, and thus could make this a stock value investors look at as a relative buy in this space. As revenue growth accelerates, Qualcomm’s valuation may become more attractive, and this is a stock I think could have more upside from a fundamentals perspective right now. 

Better Buy: Qualcomm

AMD and Qualcomm are both positioned to capitalize on AI-related surges in chip spending. But it’s generally true that AMD will likely be a bigger beneficiary, if its new chips can attract major clients looking to save money on this line item (assuming the company can create more powerful chips that can realistically eat into Nvidia’s market share).

That said, I do think there are more questions for AMD than Qualcomm. Qualcomm is a known commodity in its core market, and while there is certainly high levels of competition in the smartphone chip market (with many core clients choosing to produce their own chips, like Apple), it’s also true that Qualcomm’s fundamentals are superior. Right now, this places Qualcomm as the optimal pick for investors looking to choose between the two right now.

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