Microsoft recently announced that it will offer its cloud computing customers the ability to use the MI300X artificial intelligence (AI) chips made by Advanced microsystems (NASDAQ:AMD). Microsoft will offer MI300X chip clusters through its Azure cloud computing service as an alternative to NvidiaIt is (NASDAQ:NVDA) H100 Graphics Processing Units (GPUs).
Given this announcement, is it time to abandon Nvidia shares in favor of AMD?
The simple answer is no. Expanding on this answer, this could be a good time to buy both stocks – as well as another beneficiary.
Why Microsoft started offering AMD chips
Microsoft isn’t offering cloud customers the option of AMD GPUs to counter Nvidia’s GPUs, which have become the industry standard for helping power AI applications in the data center. The problem is that Nvidia’s chips are so popular that it’s becoming difficult for companies to get hold of them. It’s not a bad problem.
Nvidia and AMD are struggling to meet demand for their GPUs. Semiconductor manufacturing in Taiwan (NYSE:TSM), the world’s largest semiconductor maker, said its advanced packaging capacity is fully booked for the rest of this year and next year. This is speculated to be due to demand for GPUs from Nvidia and AMD, both of which are among the company’s top 10 customers.
TSCM is working to aggressively expand its production capacity to meet demand for AI and other high-performance computing (HPC) chips. The company now plans to build a third manufacturing plant (fab) in Arizona after its first plant in the state just began wafer production. It also just completed its first specialty technology manufacturing plant in Japan and announced that a second in the country will be completed by the end of 2027. It is also building a manufacturing plant in Germany for automotive applications and industrial buildings, construction of which should begin at the end of this year.
TSMC is also looking to fully develop its 2-nanometer chip technology. In the semiconductor industry, as technology evolves toward smaller nodes (semiconductor sizes), more chips can fit on a wafer, increasing production capacity and reducing costs.
However, until this technology and fabulous expansion takes hold, the GPU market appears to remain tight.
It’s time to buy Nvidia, AMD and TSMC
Instead of abandoning Nvidia, now could be a great time for investors to buy both Nvidia and AMD stock, as well as TSMC. The demand for high-performance computing chips and GPUs is enormous, and the industry is currently struggling to meet demand.
Nvidia remains the undisputed leader and its growth has been nothing short of spectacular. The company long became the industry standard for GPUs before the advent of AI thanks to its CUDA software platform, which allows direct programming of its 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 manufacturing facilities and instead rely on contract manufacturers like TSCM.
AMD, for its part, is taking advantage of a very tight GPU market. With its first-quarter results, the company just increased its full-year forecast GPU revenue for data centers from $3.5 billion to $4.0 billion. And since Nvidia GPUs are hard to obtain, AMD has the opportunity to break into this market and become a viable number two player. Companies generally don’t like to rely too heavily on a single supplier, so current market dynamics could give AMD a more lasting boost if its chips are well received.
TSCM, meanwhile, is one of the biggest beneficiaries of demand for GPUs and chips, as companies race to get these chips to power AI applications. By adding additional fabs and moving to 2-nanometer technology, TSCM stands to benefit from the AI ​​chip boom. This will also benefit as more companies join us. For example, it has been reported that Arm holds And Flexible banking sought to design an AI chip, while companies like Amazon have also entered the AI ​​chip business. Apple Executives, meanwhile, reportedly met with TSMC to reserve 2-nanometer production to help it catch up on AI. All of this benefits TSMC.
When looking at valuations, TSMC is the cheapest stock, trading at around 24x. Forward P/E. It’s even cheaper on an enterprise value to EBITDA basis, trading at almost 13 times. This measure takes into account one’s net debt position and excludes non-cash expenses.
Nvidia, meanwhile, trades at a forward P/E of 37 and 32 on an EV/EBITDA basis. Given its growth, this is an inexpensive valuation.
AMD is the most expensive stock of the bunch, trading at a forward P/E above 47 and an EV/EBITDA multiple above 50. However, the company has yet to see the potential inflection point AI chips that the other two companies have achieved. , so it still has potential.
In order of preference right now, Nvidia would be my top choice, followed closely by TSMC, then AMD. However, all three stocks show 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 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 on Microsoft and short January 2026 $405 calls on Microsoft. The Mad Motley has a disclosure policy.
Is it time to ditch Nvidia stock for advanced micro devices after Microsoft’s announcement? was originally published by The Motley Fool
