Microsoft recently announced that it would offer its cloud computing customers the ability to use MI300X artificial intelligence (AI) chips created by Advanced micro devices (NASDAQ: AMD). Microsoft will offer clusters of MI300X chips through its Azure cloud computing service as an alternative to Nvidia‘S (NASDAQ: NVDA) H100 graphics processing units (GPUs).
Given this announcement, is it time to dump Nvidia stock in favor of AMD?
The simple answer is no. Expanding on that answer, it could be a good time to buy both stocks – and a beneficiary, too.
Why Microsoft started offering AMD chips
Microsoft isn’t offering cloud customers the option of AMD GPUs to beat Nvidia’s GPUs, which have become the industry standard for supporting AI applications in the data center. The problem is that Nvidia’s chips are so popular that it makes it difficult for companies to get their hands on them. This is not a bad problem to have.
Both Nvidia and AMD are struggling to keep up with demand for their GPUs. Taiwanese semiconductor manufacturing (NYSE: TSM), the world’s largest semiconductor manufacturer, said its advanced packaging capacity is fully booked for both the remainder of this year and next year. This is believed to be due to demand for GPUs from both Nvidia and AMD, both of which are the company’s top 10 customers.
TSCM is aggressively expanding its manufacturing capacity to meet demand for AI and other high-performance computing (HPC) chips. The company now plans to build a third production facility (fab) in Arizona, after the first factory in the state just started producing wafers. The company has also just completed its first specialty technology factory in Japan and has announced that a second factory in the country will be completed by the end of 2027. It is also building a factory in Germany for automotive and industrial applications, which is expected to start construction at the end of this year.
TSMC also wants to fully develop its 2-nanometer chip technology. Within the semiconductor industry, as technology moves to smaller nodes (semiconductor sizes), more chips can fit on a wafer, increasing production capacity and reducing costs.
Until this technology and this expansion of the technology takes hold, it appears that the market for GPUs will remain tight.
Time to buy Nvidia, AMD and TSMC
Instead of dumping Nvidia, this could be a good time for investors to buy both Nvidia and AMD stock, as well as TSMC. The demand for high-performance computer chips and GPUs is enormous, and the industry is currently struggling to meet the demand.
Nvidia remains the clear leader and its growth has been nothing short of spectacular. The company long ago became the GPU industry standard before the advent of AI through its CUDA software platform, which allowed direct programming of the GPUs. At this point, the company can probably sell as many chips as its foundry partners can produce. Today, most semiconductor companies do not have their own production facilities, but use contract manufacturers such as TSCM.
AMD, meanwhile, is a nice beneficiary of a very tight GPU market. With its first quarter results, the company just increased its full-year expected GPU data center revenue from $3.5 billion to $4.0 billion. And with Nvidia GPUs hard to come by, AMD has an opportunity to enter this market and become a viable number two player. Companies generally don’t like to be too dependent on one supplier, so current market dynamics could give AMD a long-lasting boost if its chips are well received.
TSCM, meanwhile, is one of the main beneficiaries of demand for GPUs and chips, as companies rush to get these chips for AI applications. By adding additional factories and switching to 2-nanometer technology, TSCM will be able to benefit from the rise of AI chips. It will also benefit if other companies jump on board. This has been reported, for example Arm positions And Softbank have tried to design an AI chip, while companies like it Amazon have also entered the AI ​​chip business. Apple It has since been reported that executives have met with TSMC to reserve 2 nanometer production to help catch up in AI. This all benefits TSMC.
Looking at valuations, TSMC is the cheapest stock, with a price-to-earnings ratio of about 24 times. It’s even cheaper on an enterprise value/EBITDA basis and trades almost thirteen times over. This measure takes into account the net debt position and takes into account non-cash expenses.
Nvidia, meanwhile, trades at a price-to-earnings ratio of 37, and 32 on an EV/EBITDA basis. Considering the growth, this is a cheap valuation.
AMD is the most expensive stock of the group, with a price-to-earnings ratio of more than 47 and an EV/EBITDA multiple of more than 50. However, the company has not yet seen the potential AI chip inflection point that the other two companies to have. , so it still has potential.
In order of preference, Nvidia would be my top choice right now, followed closely by TSMC and then AMD. However, all three stocks have strong long-term potential.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices, Amazon, Apple, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
Is it time to dump Nvidia stock for high-end micro devices after Microsoft’s announcement? was originally published by The Motley Fool
