AMD is probably undervalued, but Nvidia is clearly way overvalued.
I don't think the reckoning will come from AMD stealing Nvidia's market share, it'll come when the hype bubble collapses and businesses start treating neural networks like commodities, running whatever is cheapest instead of the absolute most powerful. AMD is in a great position, because they make both great GPU/NPU hardware and great CPU hardware.
> AMD is probably undervalued, but Nvidia is clearly way overvalued.
AMD trades at a price to earnings ratio of 99, NVDA trades at a PE of ~38. PE isn't everything when looking at companies, but I don't see other reasons to think AMD is undervalued
AMD's PE ratio looks high because of their Xilinx acquisition and for tax reasons. You have to look at non-GAAP numbers instead, e.g. AMD's forward PE ratio which is only ~20 or so. Nvidia's forward PE is ~30.
Is PE even anything? If you guided your investing based on sane PE ratios for the past decade you would have been consistently unhappy with missing out on huge gains in tech companies.
PE is appropriate for companies going steady. It's not appropriate for companies that are growing or dying.
Thought experiment: A and B have the same earnings per share, but everyone expects A to double its revenue going forward and B to go steady. Should shares of A go for the same price as shares of B? If you think so, I can front-run you.
Thought experiment 2: A and B have the same earnings per share, but everyone expects A to halve its revenue going forward and B to go steady. Should they go for the same price? If you think so, I have some bags for you to hold.
The easy answer is that PEG is more appropriate for growing companies and PB is more appropriate for dying companies (since this is HN, I'll also mention that "Team and TAM" is the metric for seed stage). The hard answer is that there is no substitute for modeling the finances of the company and applying a DCF, but your brokerage app can't do that for you so PE/PEG/PB still have their place.
In the long run, I believe yes. PE also would not have been helpful in the late 1920s or late 1990s. But things tend to revert.
One of the reasons why different companies have different p/e for a long time is expectation of growth. So META has had a pretty high P/E, but then E has been growing really fast. GM's earnings don't grow so past so the P/E is low. And capital efficiency also hurts P/E.
Disclaimer: I believe stocks represent fractional ownership of an actual company and are ultimately (but not always) valued as such. You can make an argument that financial instruments are just driven by sentiment, supply and demand, and have no correlation to actual reality.
That's because the market believes AMD will eventually get its head of its ass on GPUs and start to grow in that segment. Once it starts to grow there, that PE will go up even higher.
Keep in mind that Nvidia gets to charge astronomical prices because AMD's software is crap. Nvidia charges 2-5x as much for equivalent or worse hardware compared to what AMD is selling. That PE ratio will collapse if AMD ever manages to get its act together.
I'm still astounded AMD has no fired every executive from the CEO down for this obvious multi-year failure.
NVDA is valued more appropriately than AMD. NVDA’s valuation based on forward earnings is high, but there are many more extreme examples including AMD.
Nvidia is imho kind of a resurgence of large scale 90s Unix systems (ala SGI) [1], and not just by pricing and looks but also if you look at the vertical integration. I think this kind of business setup is more vulnerable to competition from below than people like to think, and it really only takes 1-2 product misses for a big shakeup.
[1] Co-developed proprietary software stacks running on highly proprietary and non-standard hardware targeting very specific workloads.
The way I see it is that Nvidia might reacht $1 trillion in revenue before AMD reaches $100 billion in revenue. So the upside in revenue growth is higher for Nvidia.
People think that because a company has grown very large very quickly that it can't grow as much anymore. But on the other hand, there is clear evidence that Nvidia continues to dominate AMD's offerings despite the latter having a competitive product now. So the metric for Nvidia isn't Nvidia vs. AMD but the growth aspect of AI market overall.
NVIDIA is one of the most undervalued companies in the SPX looking at fundamentals, even disregarding what they are planning next (subscription services for CUDA, and humanoids, etc).
Take a look at their last quarter's income statement graph: https://i.imgur.com/mQwZ5o4.png - Once in a few years I see a Sankey graph looking like that. And it's only growing over the last 10 years.
Is it possible someone will write a CUDA to AMD/Tensor/whatever transpiler (high-level emulator? I'm not sure of the right term) I thought there were a remarkably small number of ops that GPUs perform. Seems like a very high premium to pay for not wanting to rewrite in JAX or whatever.
Lack of translation layer wasn't the problem, AMD's shit being completely broken (for this purpose) was the problem. Driver-level broken, possibly hardware-level broken. Black screens, restarts, wrong answers, threads full of people shouting into the void year after year about the same behavior before seeing the light and buying nvidia.
Then NVDA pumped by trillions and AMD did not and even AMD's crack team of trained denial specialists could no longer stay the course, so they started to turn the ship. But that was only a year or two ago and even the tiniest changes take years in hardware land so the biggest sins are still baked in to the latest chips, but at least the software has started to suck a bit less.
I no longer see 100% of the people who try to build on AMD compute run away screaming. Many do, but not all. That's a change, an important and positive one. If AMD keeps it up maybe they can save us from 80% margins on matrix multiplication after all.
I wondered if John Carmack would take his strong knowledge of low level hardware and interest in AI and work on this, but he seems to be working on a non LLM flavor of AI.
No it is not actually. They are making insane amounts of money and have very strong forward guidance. With the drop in the last month it is actually cheap (low peg ratio). When the market turns, nvidia is likely to soar once again.
Tell me you haven't looked at Nvidia's financials (especially the margins) without telling me. It basically prints money, now and in the foreseeable future, and all of its products are permanently sold out, even at the insane prices Nvidia is charging.
I think this is the arguable part. The more AI compute becomes valuable, the more reason there is to divest from their software moat. Their hardware is good, but not unassailable. I think their modest (by tech hype standards) P/E is recognition of this.
While I agree with you in theory, the practice of this has been somewhat less optimistic. So far AMD hardware _doesn't even work_. That's why Geohot had to write his own stack. Moreover, it also doesn't sell - there's maybe one or two obscure cloud providers for it. No major cloud provider has it, or is going to have it anytime soon, until software and driver problems are figured out. Why? Simple - they have no interest whatsoever in disappointing their customers and/or spending all of their support engineering time on supporting obscure GPUs that they'll have to charge less for in order for them to see uptake at all. Even Intel (!) has a more robust offering with Gaudi 2/3, and they're having a heck of a time getting large deployments anywhere outside Intel Developer Cloud.
>Jensen is super smart, business-savvy AND hard-working
Those traits are table stakes for running a Fortune 50 company. Before 2019 when the AI boom came out of nowhere, what was going on? Nvidia was an okay company, but not a real over-performer.
Nvidia has been a high margin and great performing business for the last decade. Nvidia had better gross margins than apple by selling gaming GPUs only 10 years ago and that's in a market where you can easily exchange the card in a PCIe slot.
From 2015 till 2022, Nvidia had several years with 50-60% revenue growth. People only look at the recent 2 years and think that Nvidia was "OK" before but I'm invested since 2016 because Nvidia started the growth turbo back in 2014/2015.
Jensen decided decades ago that Nvidia is premium and he positions the company in that position. What many don't get, Apple has only 25% unit share but 75% profit share. So Apple basically concentrates the profit of the Smartphone business. Nvidia will do the same. They had better gross margins a decade ago than AMD has today. AMD might gain unit share but will never gain Nvidia's margins because AMD is a market follower and will never be able to set pricing unlike Nvidia with premium solutions.
Jensen also made CUDA possible. Intel on the other hand killed such projects and also their first GPU project. Intel also didn't invest in OpenAI and so on. Jensen is by far the best CEO and fortunately he doesn't get crazy like Musk does.
Honestly, I'm having a hard time with my sarcasm detector here. Plenty of others working on robots. Plenty of smart, business savvy, hard working CEOs that didn't win the next round of the infinite game.
I like nvidia, I think they're doing good work, but I don't think their current trajectory is some sort of well-moated flywheel the way some others think it is. Selling shovels during a gold rush can make you rich, it doesn't mean you'll still be selling shovels in 100 years.
And also there is some recognition that its going to get really hard to grow them as much proportionately. AMD could increase its earnings a lot pretty quickly, but its hard for NVIDIA to grow like that for the same reasons it is hard for Apple to grow. You are already getting so many of the $ available to spend in that area.
And yet, when other companies have grown their earnings like mad, their price has outgrown it, driving their P/E up further, because the market expects higher future earnings. nvidia is reaping the rewards of the things built up to now, but isn't necessarily expected to continue to hockey stick.
Their P/E is approximately the same as the rest of the S&P 500 technology sector's average.
>Tell me you haven't looked at Nvidia's financials (especially the margins) without telling me.
What happens to industries that have huge margins? They get compressed by competition. The biggest companies on the planet, literally, are figuring out how to not pay Nvidia those huge margins.
Yes, we can see how Big Tech and Apple's huge margins get compressed all the time, they never expand. They are going to zero soon it seems :(
You can't say that in general because it also depends on the moat.
Apple has 75% profitshare in the smartphone market not because they have the best smartphone but because they sell iOS. This is why Apple can charge much higher margins on iPhones then any other smartphone competitor. Competitors use Android and are basically exchangable so their HW is commodity more or less and margins are much lower.
The same will happen with Nvidia. Nvidia will offer complete data center solutions and many other SW/HW solutions for AI and accelerated computing and will charge high margins for that. HW sellers like AMD will sell only chips which will compete with commodity ASICs.
I don't think the reckoning will come from AMD stealing Nvidia's market share, it'll come when the hype bubble collapses and businesses start treating neural networks like commodities, running whatever is cheapest instead of the absolute most powerful. AMD is in a great position, because they make both great GPU/NPU hardware and great CPU hardware.