Can Saudi AI Deals Boost AMD Over NVIDIA, and Is It a Buy?

Advanced Micro Devices, Inc. AMD is ruling the data center sector, and is giving stiff competition to NVIDIA Corporation NVDA by acquiring some of its major clients. Now, with AMD inking a deal with Saudi Arabia’s Humain, the query arises on AMD’s potential to surpass NVIDIA in the long term and its investment appeal. Let’s analyze. 

Saudi AI Push Is Beneficial for Both AMD & NVIDIA 

Several semiconductor companies were wary of moribund economic growth affecting spending on artificial intelligence (AI) hardware. The companies were concerned about the impact of ongoing geopolitical tensions on AI investments. However, the concerns have ebbed since Saudi Arabia and U.S. chip companies signed new deals.  

AMD announced a $10 billion partnership with Saudi AI firm Humain to expand its AI infrastructure over the next five years, aiming to counter the effects of U.S. export restrictions to China. However, AMD isn’t the only one set to benefit from Saudi AI initiatives. NVIDIA, too, has partnered with Humain to sell over 18,000 AI-focused chips, amounting to nearly $700 million.  

NVIDIA plans to sell its advanced graphics processing units (GPUs) to the Saudi firm soon, and its GB300 Blackwell chips are expected to power a 500-megawatt data center in Saudi Arabia. This has mitigated the Trump administration’s ban on NVIDIA selling H20 chips to China. 

Thus, it’s evident that the AI trade has mutually benefited NVIDIA and AMD without a clear winner. According to Bank of America Corporation BAC analyst Vivek Arya, NVIDIA and AMD’s strategic partnership with Humain is estimated to be worth $15 billion to $20 billion over the next five years.  

Is There Any Way AMD Can Outperform NVIDIA? 

Sheer dominance in the GPU space has made NVIDIA’s products costly, with primarily magnificent-7 companies being its customers. AMD, on the other hand, can compete with NVIDIA on price and cater to customers who can’t afford NVIDIA’s pricey products.  

Having said that, large companies are also finding ways to build AI infrastructure cost-effectively. That’s why Microsoft Corporation MSFT is using AMD’s MI300X chips, and Oracle Corporation ORCL has signed up for MI355X GPUs, which can pose serious challenges to NVIDIA’s next-generation Blackwell chips.  

While these factors may increase AMD’s data center revenue and share price, expecting its stock to outperform NVIDIA is improbable. This is because the increase in AI data center spending will fuel NVIDIA’s stock growth. The popularity of the CUDA software platform among developers and the high demand for Blackwell chips are likely to boost NVIDIA’s quarterly performance, driving up its share price.  

This is the reason why brokers have raised NVIDIA’s average short-term price target by 27.8% to $166.10 from the previous $129.93.

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Whereas, brokers have increased AMD’s average short-term price target by 13.8% to $128.03 from the previous $112.46 (read more: Which AI Stock, NVIDIA or SoundHound AI, Offers Better Gains?).

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Here’s How to Trade AMD Stock Now

While AMD may not surpass NVIDIA’s shares, it is well-positioned to gain momentum through the Saudi AI deal. AMD also recently announced a $6 billion share repurchase program, indicating management’s optimism about the company’s future. The share buyback program would reduce outstanding shares and raise the value of the remaining shares, and benefit stakeholders, so they should keep the stock. 

However, AMD stock is pricey. According to the price/earnings ratio, AMD trades at 28.7X forward earnings. But, the Computer - Integrated Systems industry’s forward earnings multiple is 20.9X. Therefore, new entrants should wait for a more affordable price on AMD stock to avoid overspending. For now, AMD stock has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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