There’s been a slight pullback from investors in the tech market, with the Nasdaq-100 Technology Sector index down 9% since the start of August. Excitement over booming industries like artificial intelligence (AI) seems to have peaked as fears grow that macroeconomic headwinds could curb consumer spending through the coming holiday season.
The dip in the market presents a potential buying opportunity and an excellent time to consider making a long-term investment in tech. Amazon (NASDAQ: AMZN) and Advanced Micro Devices (NASDAQ: AMD) have shined as some of the industry’s biggest players this year. While they have succeeded in wildly different areas of the industry, these companies could soon go head to head in the AI chip market.
As a result, it could be worth adding one of these companies to your list of holdings. So, let’s find out whether Amazon or AMD is the better buy.
Amazon CEO Andy Jassy announced in July that the company’s next move in AI would see it venture into chip development. Nvidia has dominated the industry this year, with its 90% market share in AI graphic processing units (GPUs). Its command of the market has many companies calling for increased competition as it will reduce the cost of chips.
Amazon has responded to market demand by developing two new chips it calls Inferentia and Trainium, which Jassy has promised will deliver “much better price-performance than you’ll find anywhere else.” The company isn’t massively experienced in chip production. However, its years of dominance in cloud computing with Amazon Web Services (AWS) have likely given it the knowledge and brand recognition to become a major player in the industry.
In addition to chips, Amazon is continuing its aggressive expansion into AI by investing up to $4 billion in Anthropic, a competitor to ChatGPT developer OpenAI. The collaboration will provide AWS members with early access to various AI features and models.
Amazon has rallied investors this year with its AI efforts and a return to profitability in its e-commerce business. The company has a solid outlook and could offer stockholders significant gains in the coming years.
Like Amazon, AMD has pulled out all the stops for its AI expansion this year in an effort to eventually steal market share from Nvidia. The company unveiled the next entry in its MI300 line of chips in June, calling it its most powerful GPU ever. The new chip is expected to begin shipping in 2024. It remains to be seen what companies will sign on to use AMD’s latest hardware, but the company has massive support across tech. If it can debut the chip at competitive pricing, the company could be in for a boost to earnings as it attracts new clients.
Moreover, AMD acquired AI software firm Mipsology last month as it works to develop a platform that can be used in conjunction with its GPUs to produce AI models, similar to Nvidia’s CUDA. AMD is playing the long game in AI after falling behind. However, its years of success as a leading chipmaker could play to its advantage.
AMD released its second-quarter 2023 earnings on Aug. 1, reporting an 18% year-over-year decrease in revenue after declines in multiple segments. The company continued to suffer from a burdened PC market and macroeconomic headwinds. Meanwhile, it has yet to see any returns on its investment in AI. As a result, AMD shares have tumbled 18% since posting its Q2 results.
AMD’s dip could be a smart investment, but prospective stockholders should be prepared to invest for the long haul.
Amazon and AMD have swiftly expanding positions in AI and could grow into key players in the chip market over the long term. However, Amazon is the more reliable buy for now. Both companies have yet to see any significant returns from their ventures into AI, so the success of their other businesses is crucial.
AMD has suffered revenue declines across multiple segments this year. Meanwhile, Amazon’s e-commerce business has enjoyed a solid return to profits. In Q2 2023, its North American segment hit over $3 billion in operating income after reporting $627 million in losses a year ago. Meanwhile, its cloud platform AWS delivered a 12% rise in revenue.
Amazon’s business is on a positive trajectory before seeing any significant gains from AI. Compared to AMD’s recent tumbles in earnings, Amazon is the better and safer buy right now.
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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. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon.com, and Nvidia. The Motley Fool has a disclosure policy.
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