NVDA v AMD: a bet from last year

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I have a close friend who is a software engineer. I have known him since we were kids, and I will call him John to protect his identity. Last year we were talking about NVDA and AMD. John owned AMD and I owned NVDA. The date was 6/21/2017. AMD was at $14.00 and NVDA was at $158.95.

I suggested to John that he sell his AMD shares and put the money into NVDA. Being a software engineer, John believed that he had more knowledge about this matter than I did. He was convinced that AMD was a better investment and that AMD was going to do better than NVDA. I said that in 2 years (which would be 6/21/2019) NVDA would outperform AMD. Interestingly, part of what influenced him is the share prices. AMD was trading at $14 and NVDA was trading at about $160 so AMD must be a better deal, right? I’ve tried to explain the concept of market cap and P/E and competitive advantage and financial statements to John. All of this didn’t matter because AMD was at $14 and NVDA was at $160 which was just too expense compared to AMD. And John was a mathematics major in college.

We are not yet one year into the 2-year bet.

AMD is down 12.1%
NVDA is up 61.5%
This 73.6% difference does not include the 3 paid and 1 declared dividends from NVDA.

At this point, I would be willing to double down on this bet of course picking NVDA to outperform for the next two years from today.

Chris

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I’ll take that bet.

Not that I don’t like Nvidia - I do. But I think we have an overbought situation at Nvidia. People are going to be willing to take profit, and the smallest misstep will cause a lot of bloodletting. I’d rather buy on a pullback - sometimes I get it, sometimes I miss it, but on this Nvidia I think the risk/reward profile is better to be cautious.

AMD is the reverse. It is in a turn around situation, and has been doing everything right in the last 6 months. The new CEO is making all the right moves. Intel has stumbled, giving Nvidia a better opportunity in the x86 space. Intel is also partnering big time on gaming chips, providing an opportunity to take market share from Nvidia. AMD is oversold - anything positive will move the stock up, and there is still a lot of short activity - 20% of the float is shorted, according to MarketWatch.

If you want to talk 5 yrs, I’m not sure which I would choose, but for 2 yrs, I’ll definitely go with AMD

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AMD is the reverse. It is in a turn around situation

Seems this has always been the case for AMD since the 90s. But take a look at that chart. History is not on your side.

Greg, long NVDA