Seemingly overnight, artificial intelligence became a major growth industry. The global AI market was valued at $93 billion in 2020 and is expected to reach $244 billion by 2025.
The rise of AI drives demand for semiconductors, crucial components in AI systems. These components provide efficient energy consumption for the data centers that house AI technology and computing power that allows AI to perform tasks. This makes investing in semiconductor stocks a great way to benefit from the expansion of the AI market.
Two attractive semiconductor companies to consider are: Wolf speed (NYSE: WOLF) And Advanced micro devices (NASDAQ: AMD). Wolfspeed is a leader in silicon carbide (SiC) products used in energy applications. AMD produces advanced semiconductor chips for AI.
Both have seen a share price decline this year from December 16, creating a potential buying opportunity. Let’s take a look at each to assess whether one is a superior long-term AI investment.
AI systems cost millions of dollars to operate, and part of that is the energy costs of running the many machines used by AI. That’s where Wolfspeed’s SiC products come into the picture.
SiC offers greater efficiency and smaller system size and weight than comparable silicon power devices. As the AI market grows in the coming years and the need for more energy grows with it, the demand for silicon carbide products is expected to increase.
Wolfspeed expects this growth in the SiC market to ultimately bring the company $3 billion in annual revenue. That’s a dramatic increase from the $807.2 million earned in the 2024 fiscal year ending June 30.
To meet expected demand, Wolfspeed is building its SiC manufacturing capabilities, primarily at its Mohawk Valley manufacturing facilities in New York. This factory opened in 2022 and increases its revenue contribution to the company.
In Wolfspeed’s first fiscal quarter of 2025 ended September 29, the Mohawk Valley plant contributed $49 million to the company’s $194.7 million in revenue. This is an increase from just $4 million a year ago.
However, Wolfspeed’s ramp-up efforts are proving to be expensive. The company had revenues of $194.7 million in the first quarter, but costs of sales were $230.9 million. This led to a first quarter net loss of $282.2 million.
Wolfspeed is taking steps to reduce its capital expenditure (capex). In fiscal 2024 ending June 30, Wolfspeed’s capital investment was $2.1 billion, but it is targeting a 43% reduction in fiscal 2025. Adding to the challenges, the company’s CEO resigned in November.
AMD has seen its sales boom for years, “driven by the almost insatiable demand for more computing power,” said CEO Lisa Su. She refers to how AI is ushering in an era in which the processing power of computers must continually increase.
AMD specializes in accelerated computing to achieve this power boost. Accelerated computing uses special hardware to perform intensive computing tasks, such as the data crunching required for AI.
AMD sells components geared for accelerated computing, such as graphics processing units (GPUs) and accelerators. These components ensure that AI systems can perform quickly and effectively. As a result, the company saw revenue explode in its data center business.
AMD’s data center revenue rose 122% year over year to a record $3.5 billion in its fiscal third quarter ended September 28. This helped the company grow total revenue by 18% to $6.8 billion in the third quarter, while net profit rose 158% to $6.8 billion. $771 million.
However, revenue from the gaming segment, once a substantial contributor to revenue, fell 69% year-over-year to $462 million. This decline offset some of the gains AMD made in its data center division.
When considering whether to buy Wolfspeed or AMD, the threat of looming US government tariffs and export restrictions on semiconductor products must be taken into account. These government actions could have an impact on the turnover of semiconductor companies. That puts some downward pressure on the price of semiconductor stocks.
Still, Wolfspeed and AMD’s in-demand technologies can continue to deliver business growth thanks to AI’s secular trend. Over the long term, their advanced technology positions the pair to see shares recover from recent price declines.
Another important consideration is stock valuation. To assess this, here’s a graph of Wolfspeed and AMD’s price-to-sales ratio (P/S), a metric that measures how much investors are willing to pay for each dollar of revenue.
The chart shows that Wolfspeed’s P/S multiple is lower than AMD’s and is in fact the lowest in years. This suggests that the SiC leader’s stock offers the better value compared to AMD.
That said, Wolfspeed’s business is facing significant headwinds, such as its significant costs, lack of profitability and the resignation of its CEO. Therefore, only investors with a high risk tolerance should consider buying Wolfspeed stock.
For that reason, AMD wins out between these two semiconductor giants as the better AI stock to invest in over the long term.
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Robert Izquierdo holds positions in Advanced Micro Devices. The Motley Fool holds positions in and recommends Advanced Micro Devices and Wolfspeed. The Motley Fool has a disclosure policy.
Better Artificial Intelligence Stock: Wolfspeed vs. AMD was originally published by The Motley Fool
