Why I Am Still Choosing AMD Over Nvidia

Advanced Micro Devices (AMD) shares declined ~8% following Q2 earnings, driven by market disappointment over lower gross margins and data center revenue relative to NVIDIA's performance. However, the analysis posits Q2 was a "transitional quarter," attributing margin compression to an $800 million inventory hit and anticipating future growth from the ramp-up of AMD's MI350 GPUs in the high-growth AI inference market. The author reiterates a "BUY" rating, projecting substantial upside potential (15% to 6X return) as a strategic bet on AMD's AI inference capabilities, despite its current scale disparity with NVIDIA.

Analysis

Advanced Micro Devices (AMD) experienced an approximate 8% share price correction following its Q2 earnings, driven by market disappointment in key metrics when compared to rival NVIDIA. Specifically, the market reacted to a gross margin of 40% and a sequential decline in data center revenue. However, these figures warrant deeper inspection. The reported gross margin was distorted by a one-time, $800 million inventory charge linked to U.S. export controls, with the underlying adjusted margin standing at a more robust 54%. Furthermore, the dip in data center revenue is attributed to the product cycle timing, as the company's next-generation MI350 GPU series only commenced its production ramp in June, the last month of the quarter. The forward-looking thesis for AMD is therefore centered on a strategic pivot to the AI inference market, an area projected by management to grow 80% annually. The commercial success of the MI350 GPU, which is positioned to offer up to 40% more tokens-per-dollar than competing NVIDIA products in certain workloads, is the central catalyst. While AMD's current growth (32% YoY revenue) and margins significantly trail NVIDIA's (122% YoY revenue, ~75% gross margin), the investment case is framed as an asymmetrical opportunity where substantial upside does not require AMD to surpass its competitor, but merely to capitalize effectively on the next wave of AI adoption.

Key Decisions for Investors

• Investors should assess AMD based on its forward-looking potential in the AI inference market with its new MI350 GPUs, rather than the transitional results of Q2 which were impacted by one-off charges and product ramp timing.
• The primary risk and key performance indicator to monitor is the commercial adoption and sales trajectory of the MI350 GPU series in the second half of 2025, as this will determine if the bull case materializes.
• Consider AMD as a high-risk, high-reward investment with an asymmetrical return profile, suitable for those willing to accept significant volatility for potential upside that is not dependent on overtaking NVIDIA in market size.
• It is prudent to anticipate continued share price volatility, as market sentiment will likely fluctuate based on competitive developments and the execution of AMD's AI product strategy.