The AI Chip War: Why Sell AMD and Hold Nvidia

A comparative analysis of two AI chip giants, Nvidia and AMD, from an investment perspective.

Nvidia: The Undisputed Leader in AI Chips

Nvidia currently demonstrates overwhelming dominance in the AI hardware market. Particularly in the data center GPU market, it holds over 80% market share, exclusively supplying the H100 and A100 chips essential for training large language models like ChatGPT.

Core Strengths of Nvidia

Technological Superiority: The CUDA platform has become the de facto standard for AI researchers and developers. The software ecosystem built over a decade creates a moat that competitors cannot easily replicate.

Explosive Growth: Data center revenue grew over 200% year-over-year in 2023, with this trend continuing into 2024. As long as AI infrastructure investment continues, the growth momentum is expected to persist.

Concerns: Valuation and Competition

However, risks exist even for Nvidia stock. The current P/E ratio exceeds 60x, a level that can only be justified by assuming continued high growth. Additionally, competitors like AMD, Intel, Google, and Amazon are accelerating their own AI chip development, potentially intensifying competition in the long term.

AMD: The Lagging Challenger

While AMD achieved a successful turnaround by threatening Intel in the CPU market, it significantly lags behind Nvidia in AI chips.

Limitations of AMD

Market Share Gap: Although the MI300 series boasts technically superior specifications, actual market share does not even reach 10%. It has failed to overcome the lock-in effect of the CUDA ecosystem.

Slowing Data Center Growth: Data center division growth has been lower than expected. While Nvidia records triple-digit growth, AMD manages only double-digit growth.

Intensifying Competition: With Intel aggressive pricing and cloud companies developing their own chips, AMD faces pressure on both the CPU and GPU fronts.

Investment Strategy: Hold vs Sell

Nvidia - Hold Recommendation

Despite high valuation, Nvidia occupies an irreplaceable position as a core AI infrastructure provider in the short term. However, maintaining existing holdings rather than new purchases appears more appropriate. The price target suggests 10-15% upside from current levels, though short-term volatility is expected to be high.

AMD - Sell Recommendation

While AMD possesses excellent technology, catching up to Nvidia in the AI market will take too long. Current stock prices already reflect substantial growth expectations, making the risk-reward ratio unattractive. Even if the AI boom continues, Nvidia will capture most of the benefits, while AMD is expected to receive relatively limited gains.

Conclusion

In the AI chip war, Nvidia is the clear winner, while AMD remains in the chaser position. From an investor perspective, betting on the market leader is the safer choice, though high valuation remains a risk factor to always keep in mind.