Chip stocks, including Nvidia (NVDA) and Advanced Micro Devices (AMD) have been on an absolute tear over the last 12 months, as investors remain extremely bullish on the artificial intelligence (AI) megatrend. Both AMD and Nvidia manufacture specialized chips that help power data centers for multiple AI platforms. While Nvidia stock more than tripled in 2023, AMD stock gained 127.6% last year. 

However, a new analyst note today  warns that NVDA could be vulnerable this year as the AI hype cycle tumbles into the so-called “trough of disillusionment” phase. With tech giants taking a dive to start the new year, let’s see which semiconductor stock has more upside potential for investors right now. 

The Bull Case for NVDA Stock

Nvidia is well-positioned to benefit from the adoption of generative AI in the upcoming decade. In fiscal Q3 of 2024 (ended in October), Nvidia reported sales of $18.1 billion, an increase of 206% year over year. The majority of these gains were driven by Nvidia’s data center segment. 

Despite its massive size, analysts expect the company to increase sales by 118.4% to $59 billion in fiscal 2024 (ending in January) and by 56.5% to $92.3 billion in fiscal 2025. 

Comparatively, adjusted earnings per share are forecast to grow by 102.5% annually in the next five years. So, priced at 24.2 times forward earnings, NVDA stock is still quite cheap, given its stellar growth estimates. 

Market research company Gartner (IT) forecasts AI chip sales to surge to $67 billion in 2024, an increase of 25% year over year. Nvidia currently has a market share of almost 80% in this vertical, which means the business should generate revenue of around $54 billion in the next 12 months. These numbers could easily move higher if demand for AI chips continues to grow at an exponential rate. 

Out of the 35 analysts covering NVDA stock, 30 recommend “strong buy,” three recommend “moderate buy,” and two recommend “hold.” The average target price for NVDA is $653, indicating an upside potential of 37% from current levels. 

The Bull Case for AMD Stock

Valued at $221.7 billion by market cap, AMD has been among the hottest tech stocks in the past decade, rising a whopping 3,710% since January 2014. AMD’s CEO, Lisa Su, forecasts the data center AI chip vertical to grow from $45 billion in 2023 to $400 billion in 2027, providing it with enough room to grow its top line in the next four years. 

In addition to AI, AMD is poised to benefit from growth in its legacy businesses, such as graphics and enterprise processors. Similar to several other tech stocks, AMD wrestled with slowing PC sales, higher costs, elevated interest rates, and lower enterprise spending. It also faced challenges in China, due to restrictions on exports by the U.S. government.

Due to a challenging macro environment, AMD’s sales are forecast to decline by 4% year over year to $22.65 billion in 2023. However, revenue might rise by 16.6% to $26.4 billion in 2024. 

Comparatively, adjusted earnings per share is forecast to expand from $2.65 in 2023 to $3.73 in 2024. Priced at 39.5 times forward earnings, AMD trades at a much higher multiple compared to NVDA. However, it's growing at a much slower pace. 

Out of the 29 analysts covering AMD stock, 23 recommend “strong buy,” one recommends “moderate buy,” and five recommend “hold.” However, the average target price for AMD is $135.07, which is fractionally below the stock's current levels - suggesting that Wall Street sees more upside ahead for NVDA relative to AMD over the next year.