Advanced micro devices(NASDAQ: AMD) And Marvell technology(NASDAQ:MRVL) have enjoyed contrasting fortunes in the stock market in 2024, with one of these names delivering stellar gains while the other was in the red.
More specifically, the 13% decline in AMD stock this year pales in comparison to the impressive 76% rise in Marvell stock. Both companies benefit from growing demand for chips to power artificial intelligence (AI). So will Marvell remain the better AI stock of the two in 2025? Or can AMD turn its fortunes around in the new year and outperform Marvell?
Let’s find out.
AMD plays second fiddle Nvidia in the AI data center graphics processing units (GPU) market. Still, the company’s data center business has grown at an impressive pace.
For example, in the third quarter of 2024, AMD’s data center revenue rose 122% year over year to a record $3.5 billion.
Management says this impressive growth was driven by strong demand for the data center’s GPUs and CPUs (central processing units). The company now expects to end the year with $5 billion in GPU revenue from data centers, which would be a huge improvement over the $400 million it generated from sales of these chips in the fourth quarter of 2023.
Additionally, the company has continued to increase GPU guidance for data centers throughout the year, starting with $2 billion at the beginning of the year.
AMD is also seeing success in other related niches, such as AI-enabled personal computers (PCs). This explains why the company’s revenue from its customer segment, which includes sales of CPUs used in desktops and notebooks, rose an impressive 29% year over year to $1.9 billion in the third quarter. These two segments together produced 80% of AMD’s third-quarter revenue, and their solid growth allowed the company to offset weakness in other areas such as gaming and embedded chips.
The company’s total revenue rose 18% from the same quarter last year to $6.8 billion, while adjusted earnings rose 31% to $0.92 per share. AMD’s expectations for the current quarter are also solid. The company expects year-over-year revenue growth to accelerate to 22% in the fourth quarter. Analysts predict AMD will end 2024 with a 13% increase in revenue to $25.6 billion, along with a 25% increase in earnings to $3.32 per share.
However, the next year will be much stronger for AMD according to consensus expectations. Sales are expected to increase by almost 27%, while profits are expected to increase by 54%.
It’s easy to see why analysts expect AMD’s growth to accelerate significantly next year. First, shipments of AI-enabled PCs are expected to increase by 165% by 2025, according to Gartner. That would be a big improvement over the 100% growth expected by 2024.
AMD is well positioned to benefit from this market’s growth, as its third quarter earnings show, with PC makers like HP and Lenovo “on track to increase the number of Ryzen AI Pro platforms they offer by 2024.” then triple it. and we expect there will be more than 100 commercial Ryzen AI Pro platforms available [the] market next year.”
Meanwhile, AMD could also benefit from an improvement in AI GPU output from its foundry partner TSMC in 2025. The Taiwan-based foundry giant is expected to double in size by 2025, and is also expected to use its Arizona factory to make AMD’s upcoming AI accelerators. So there’s a good chance that the company’s stock market fortunes could turn around in 2025 thanks to AI.
Marvell Technology is a major player in the AI-focused application-specific integrated circuits (ASICs) market, a space that is growing at a tremendous pace. And the demand for Marvell’s optical equipment is also growing nicely to enable faster connections in and between data centers. These catalysts are the reason the data center business has seen incredible growth recently.
The chipmaker’s data center revenue rose 98% year-over-year to $1.1 billion in the third quarter of fiscal 2025 (which ended Nov. 2). The notable thing to note here is that the data center segment produced 73% of Marvell’s revenue last quarter, compared to just 39% in the same period a year ago. The company’s data center growth was so good that it was enough to increase Marvell’s total revenue by 7% year over year, despite steep double-digit declines in the four other segments.
Management says demand for its AI-specific chips is so strong that it is on track to exceed full-year AI revenue guidance of $1.5 billion by a significant margin. Marvell predicts $2.5 billion in the next fiscal year.
However, there is a good chance that the chipmaker can also generate higher AI revenues next year as it expands its partnerships with major cloud computing providers such as Amazon and brought an additional customer on board.
These catalysts are expected to be so strong that analysts predict a 41% increase in revenue to $8.1 billion next year, along with a 77% growth in the bottom line to $2.76 per share. By comparison, the company’s revenue is expected to rise just 4% to $1.56 per share in the current fiscal year, along with a 3% increase in earnings per share.
MRVL revenue estimates for next financial year; data by YCharts.
So there is a good chance that Marvell shares will continue their red-hot rally in 2025 as well.
We’ve seen that both AMD and Marvell are expected to grow impressively next year. Marvell is expected to grow faster than AMD, but there are a number of reasons why the latter could be a better AI choice.
First, AMD is cheaper. The stock’s sales and future earnings multiples make it the cheaper stock compared to Marvell right now.
AMD PE ratio (forward), data per YCharts; PS = price to sales. PE = price/profit.
Second, AMD is a more diversified AI stock. The company not only supplies CPUs and GPUs for data centers, but also for personal computers, indicating that it may have a larger addressable AI market than Marvell.
So investors looking for an AI stock that can deliver a mix of both value and growth may be tempted to buy AMD over Marvell, despite the stock market’s poor performance this year.
Have you ever felt like you missed the boat on buying the most successful stocks? Then you would like to hear this.
On rare occasions, our expert team of analysts provides a “Double Down” Stocks recommendation for companies they think are about to pop. If you’re worried that you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
Nvidia:If you had invested $1,000 when we doubled in 2009,you would have $348,112!*
Apple: If you had invested $1,000 when we doubled in 2008, you would have $46,992!*
Netflix: If you had invested $1,000 when we doubled in 2004, you would have $495,539!*
We’re currently issuing ‘Double Down’ warnings for three incredible companies, and another opportunity like this may not happen anytime soon.
See 3 “Double Down” Stocks »
*Stock Advisor returns December 9, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices, Amazon, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Gartner and Marvell Technology. The Motley Fool has a disclosure policy.
Better Artificial Intelligence Stock: AMD vs. Marvell Technology was originally published by The Motley Fool
