BoA Star Analyst Thinks NVIDIA and AMD are Undervalued. Which Is the Better Bet?

Vivek Arya, a seasoned analyst over at Bank of America, still thinks NVIDIA (NASDAQ:NVDA | NVDA Price Prediction) and Advanced Micro Devices (NASDAQ:AMD) are great bets despite an explosive past few years of gains. Undoubtedly, the semiconductor trade has really heated up so far this year, spreading well beyond the top AI chip firms to the memory and storage plays. As AI demand stays hot, it’ll be interesting to see how the two GPU titans fare now that the bar has been raised to new heights.

Though it’s been pretty hard for big tech to catch a break this earnings season, I do think that the stage might be set for upside at some point down the road, especially as the big semi firms look to capture AI demand that may still be above and beyond what Advanced Micro Devices CEO Lisa Su expects. According to Su, AI demand is “accelerating at a pace I would not have imagined.” That’s quite a profound statement coming from someone who knows the AI chip scene far better than almost anyone else.

Of course, AI demand is the rising tide that’s lifted not only GPU demand, but just about every other piece of hardware that’s necessary to run models at scale. Even server CPUs have been “going gangbusters,” and with several major hyperscalers continuing to raise the bar on CapEx, it feels like it’s becoming more dangerous to bet against the high-flying, seemingly overvalued semi plays than to be long them. Either way, Advanced Micro Devices seems to be coming in on the more conservative side with its first-quarter guidance.

Advanced Micro Devices and NVIDIA Might Be Great Buys on Weakness

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When even “strong” numbers can’t ignite a positive post-earnings reaction in a stock, perhaps guiding lower and posting a massive blowout is the smart way to go. Underpromising and overdelivering in a big-time way may be the best way to go for a firm like Advanced Micro Devices, especially as some of its most ambitious products hit the ground running. Undoubtedly, the Helios rack-scale system might be the catalyst that helps Advanced Micro Devices put up a good fight with NVIDIA.

Either way, I think the stock has what it takes to outpace NVIDIA from here, as Su positions her firm for the big “inflection point.” Of course, Advanced Micro Devices’ guide for the coming quarter may go against Su’s expectations of historic demand. However, I do think that patient investors will be rewarded with the name, especially if the shares come in further. In any case, Arya sees Advanced Micro Devices as oversold after the Q4 sell-off.

He also sees Advanced Micro Devices as a critical “second source” as AI demand stays hot, perhaps hotter than Nvidia can handle on its own. Finally, Lisa Su’s company has more ground to catch up, but whether it can remains the big question mark. If it can, there’s certainly more runway.

NVIDIA Has Room to Run as Well

As much as Arya likes Advanced Micro Devices, he’s also a fan of NVIDIA as it races ahead with Rubin. He’s a fan of the free cash flow trajectory as well as the valuation. I couldn’t agree more. NVIDIA stock looks cheap if you believe AI demand will stay hotter for longer.

As firms do whatever it takes to win the AI race, investors might be wise to stick with both names, especially as others turn away. Between Advanced Micro Devices and NVIDIA, I’d go with the former simply because investors lack the patience to await a catalyst that is bound to move the needle.