AMD trades at a sharply higher valuation than Nvidia even though Nvidia is larger, growing faster, and carries far stronger profit margins. The gap centers on how exposed each chipmaker is to AI data-center demand, and it marks an unusual split for two direct competitors in the same industry.
Nvidia shares fell 2.01% to $225.73 on Wednesday. AMD shares, by contrast, gained 5.90% the same session, widening a gap that Motley Fool analyst Keithen Drury calls unprecedented. Despite Nvidia's larger market share and faster growth, AMD's stock is valued at more than double Nvidia's on a trailing-earnings basis, a mismatch that historically runs the other way.
AMD's data-center exposure lags Nvidia's
Nvidia's data-center division generated $89 billion of the company's $96.2 billion in second-quarter revenue, a segment Drury describes as supply-constrained, letting Nvidia charge premium prices. AMD's data-center unit, by comparison, brought in $6.7 billion of its $11.5 billion total revenue in the same quarter, leaving a much larger share of AMD's business tied to lower-profit margin segments.
AMD's Client & Gaming division posted $3.8 billion in revenue on a 15% operating margin. That trails the data-center unit's 31% operating margin on $2.1 billion in operating income by a wide margin. Its Embedded division was the most profitable, posting a 40% operating margin on $977 million in revenue, though embedded sales remain a small slice of AMD's total business.
Nvidia's own gross margin stands at 74.67%, a level Drury says AMD cannot match without overhauling its business mix. Nvidia's market capitalization was $5.4 trillion at Wednesday's close, reflecting its scale advantage even as its shares trade well below their 52-week high of $236.54.
Nvidia looks cheaper on forward earnings
On forward-earnings estimates, which factor in AMD's expected margin gains and growth, Drury says Nvidia trades cheaper than AMD while running the stronger business. He frames the valuation split as a reason to favor Nvidia over AMD, arguing the current mismatch between the two chipmakers' multiples won't persist.
Source: The Motley Fool
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