Investing

If one could buy only one stock with $15K—should it be NVIDIA or AMD?

Joel South

Published: February 14, 2025 8:34 am

Last Updated: February 17, 2025 10:25 am

I have a secret I want to share with you. Ever since DeepSeek broke on the world stage three weeks ago, and instantly subtracted $600 billion from Nvidia’s (Nasdaq: NVDA) market capitalization, I’ve been eyeing the stock and wondering if I should “buy the dip”? I haven’t actually bought yet, however, and with Nvidia stock already back up 14% off its lows of the post-DeepSeek selloff, I’m wondering if the stock’s still a bargain?

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At the same time, I’ve got my eye on Nvidia rival Advanced Micro Devices (Nasdaq: AMD). On the one hand, AMD didn’t get as hard hit as Nvidia initially. On the other hand, though, it hasn’t bounced back nearly as much, either. As of Thursday’s close, AMD shares are still down a solid 9% from where they were pre-DeepSeek. That’s actually a bigger discount than Nvidia is offering, with the latter’s shares down only about 6%!

I’ve got $15,000 burning a hole in my pocket, and I’m wondering: Which AI semiconductor stock should I choose?

It’s good to be the king, Nvidia

Nvidia stock has a lot to recommend it. Despite the best efforts of AMD and others to unseat it, Nvidia retains an absolutely dominant 80% market share in the sale of semiconductor chips tailored to AI functions.

Nvidia’s growth rate of late has been nothing short of blistering. Sales grew an astonishing 135% year over year through the end of Q3, to $91.2 billion. Earnings nearly tripled year over year, rising to $50.8 billion.

Do the math: For every $1 worth of chips Nvidia sold this year, the company earned $0.56 in profit! And because Nvidia focuses its efforts on designing market leading chips, and letting contractors like TSMC do the heavy lifting of manufacturing the chips (and buying the capex-intensive manufacturing equipment), Nvidia’s capital spending remains minimal. Free cash flow at the company is an astonishing $45.3 billion so far this year, meaning Nvidia is putting $0.50 in the bank for every $1’s worth of chips it sells.

Valuing AMD

Compared to Nvidia, calling AMD an “also ran” in the race to dominate AI chips sales would be paying AMD an enormous compliment. Analysts estimate AMD’s global share of this rapidly rising market is no more than 7%. Maybe as little as 5%, and either way, a mere fraction of Nvidia’s share.

Its sales are also ramping much more slowly, which is disappointing given AMD’s growth is off a much smaller revenue number. With full-year 2024 results already in the books, we know that AMD grew sales only 14% year over year last year. That’s a respectable number, but AMD’s growth rate isn’t anywhere near setting the world on fire like Nvidia is. Similarly, AMD’s earnings grew 92% year over year.

For any other company, in any other industry, that would be a simply terrific growth number. The only reason it pales in comparison, is because Nvidia grew three times faster.

Should I buy Nvidia or AMD?

At this point, you’re probably thinking it’s no contest, and a no brainer which stock to pick. Nvidia’s dominating this market. AMD barely has its foot in the door, and it’s not moving nearly fast enough to catch up to Nvidia.

But wait. We haven’t discussed valuations yet. Isn’t Nvidia stock way, way (way) too expensive to buy?

From one perspective, yes, that’s definitely a concern. Valued at $3.3 trillion (with a T), Nvidia stock sells for nearly 30 times trailing sales. AMD stock at 7 times sales, while not exactly cheap, at least looks four times cheaper than Nvidia. That said, there’s a reason why Nvidia stock costs so much when valued on sales.

Remember how I pointed out how much profit Nvidia extracts from each dollar of its sales? It’s about 56%, versus just 6% for AMD’s net profit margin. Simply put, Nvidia stock is a lot more profitable that AMD and, as a result, it has a much lower price-to-earnings ratio.

Valued on earnings, Nvidia stock has a 52.5 P/E ratio. Again, that’s not cheap. But AMD’s much smaller profit margin means that its P/E ratio is 110, more than twice Nvidia’s.

Moreover, the two chips stocks have similar projected long-term earnings growth rates, 35% for Nvidia, 38% for AMD. At a PEG ratio (P/E versus growth), Nvidia stock ends up looking fairly priced with a 1.5 PEG, and AMD significantly overpriced at a PEG ratio of 2.9.

Crazy as it may sound, I ultimately have to conclude that Nvidia is the best place to put my $15,000.