In a surprising twist, the AI chip market has been shaken by a new player, DeepSeek, a China-based start-up. This company has developed an open-source large language model in just two months, costing under $6 million. This development has sent ripples through the market, causing stocks of major players like Advanced Micro Devices (AMD) and Nvidia to plunge.
The Impact of DeepSeek's Breakthrough
DeepSeek's innovation has raised questions about the future of AI chip investments. With the market in flux, investors are left wondering whether AMD or Nvidia is the better choice for their portfolios.
AMD's Position in the Market
At first glance, AMD seems to be in a favorable position. While Nvidia leads in AI accelerators, AMD's data center segment has shown impressive growth, with revenue increasing by 107% in the first nine months of 2024. This segment now accounts for 48% of AMD's total revenue, up from 25% the previous year.
Despite not outperforming Nvidia, AMD's advanced AI accelerators have maintained strong pricing power. However, the demand for less advanced accelerators could impact revenue in this segment. Additionally, AMD's gaming and embedded segments have seen revenue drops, but signs of recovery are emerging.
AMD's stock price has become more attractive due to its lower valuation. With a forward P/E ratio of 23 and a price-to-book ratio of 3, AMD presents a potential opportunity for bargain hunters.
Nvidia's Dominance and Challenges
Nvidia remains the dominant force in the AI accelerator market, with a staggering 135% revenue growth in the first three quarters of fiscal 2025. The data center segment, responsible for 87% of this revenue, has been the primary driver of growth.
However, the cyclical nature of the chip industry and DeepSeek's news could pose challenges. If demand for top-tier AI accelerators declines, Nvidia may need to lower prices, affecting its revenue growth.
Despite these challenges, Nvidia's technology remains integral to AI development. DeepSeek's model was built using Nvidia H800 chips, and Nvidia's CUDA software is essential for parallel computing. Yet, the increased use of less-advanced GPUs could impact sales of Nvidia's most advanced technology.
The Investment Dilemma: AMD or Nvidia?
Given the current landscape, AMD appears to be the safer bet. While Nvidia benefits from DeepSeek's use of its processors, the competitive advantage is uncertain. AMD's potential to attract customers with lower-end processors and the recovery of its lagging sectors make it an appealing choice for investors.
In conclusion, AMD's low valuation and growth prospects make it a more attractive option compared to Nvidia's elevated price-to-book ratio. Investors should consider these factors when deciding where to allocate their funds.
Key Takeaways
- DeepSeek's breakthrough has disrupted the AI chip market, impacting AMD and Nvidia stocks.
- AMD's data center segment shows strong growth, while its stock offers a lower valuation.
- Nvidia remains dominant but faces challenges due to market fluctuations and DeepSeek's innovation.
- Investors may find AMD a safer investment given its growth potential and lower valuation.
- The AI chip market's future remains uncertain, requiring careful consideration from investors.