Better Buy: AMD Stock vs. Microsoft Stock
The COVID-19 pandemic led to a boom in the cloud industry as hybrid working styles encouraged more companies to take their businesses online. Meanwhile, recent advances in artificial intelligence (AI) have the potential to further develop the market, as multiple cloud platforms are racing to offer the best AI services.
As a result, companies in these industries are incredibly compelling stock investments. Advanced Micro Devices (NASDAQ: AMD) and Microsoft (NASDAQ: MSFT) likely play crucial roles in the future of cloud computing and AI, one leading in hardware and the other in software.
Now is an excellent time to consider adding one of these companies to your portfolio, but first, you'll need to know whether AMD or Microsoft stock is the better buy. Let's take a closer look.
Advanced Micro Devices
AMD's strength lies in its hardware. It's home to powerful chips as a leader in processors, graphics processing units (GPUs), and semi-custom offerings. Its business has led to a strong position in the cloud computing industry through its data centers. In fact, revenue in AMD's data center segment rose 64% to $6 billion in fiscal 2022, with operating income climbing 68% to $1.8 billion.
The company's GPUs and processors run data centers worldwide, powering cloud platforms like Microsoft's Azure and Alphabet's Google Cloud. Meanwhile, AMD's recently launched Genoa series of data center chips in November 2022 increased its authority in the industry. The chips were released ahead of Intel's competing Sapphire Rapids line, which debuted in January 2023 after two years of delays. And according to Bernstein analyst Stacy Rasgon, benchmarks showed AMD's server chips outperform Intel's in "general purpose workloads."
Considering AMD's Genoa chips already have Azure, Google Cloud, and Oracle among their clientele, the company's future in data centers is promising.
Moreover, the booming AI industry could prove immensely lucrative for the company over the long term. According to Trendforce, OpenAI's advanced AI chatbot ChatGPT utilized 20,000 GPUs in 2020 and is expected to up that number to 30,000 as it prepares for commercialization. Nvidia is the main supplier of GPUs to ChatGPT. However, many companies are currently developing competing programs that could easily turn to AMD for chips, making the tech giant's stock a no-brainer buy.
Microsoft
While AMD is leading in hardware, Microsoft is an attractive investment thanks to its powerful software. Since its founding in 1975, the company achieved substantial market shares in operating systems, productivity software, gaming, and cloud computing. Its brands -- Windows, Office, Xbox, and LinkedIn -- have become household names for consumers, with their potency likely to keep the company growing for decades.
However, it's Microsoft's priority in developing future technologies that make its stock an attractive investment. The company's cloud platform Azure launched in 2010, which has substantially paid off as the internet became a more diverse and invaluable resource with the rise of high-powered activities such as video and music streaming, increased data consumption, and increasingly complex websites.
In the second quarter of 2023 (ending December 2022), Azure revenue grew 31% year over year, with Microsoft's entire intelligent cloud segment reporting a revenue rise of 18% to $3.2 billion. Azure's position with the second-largest cloud market share at 21%, only behind Amazon Web Services, makes it a major asset for Microsoft and will likely continue boosting revenue for years.
Additionally, Microsoft's $1 billion investment in OpenAI in 2019 underlined its talent for backing future technologies. Since the release of ChatGPT, Microsoft invested a further $10 billion in the company and began integrating OpenAI's technology into several of its services, such as Azure, its search engine Bing, and its Office productivity software. Microsoft's partnership with OpenAI has made it the go-to for AI services, strengthening its position in a market expected to develop at a compound annual growth rate of 37.3% through 2030.
AMD and Microsoft are both companies building the future, making their stocks exciting long-term investments. However, if you can only add one to your portfolio, I'd go with AMD. Its powerful hardware grants it the freedom to sell its wares to any company competing in these high-growth tech markets.
Meanwhile, AMD's business likely has more room to grow compared to Microsoft's far more mature company. For instance, AMD's stock has risen 869% in the last five years, while Microsoft's increased about 214%.
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Suzanne Frey, an executive at Alphabet, 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, Alphabet, Intel, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2023 $57.50 calls on Intel and long January 2025 $45 calls on Intel. The Motley Fool has a disclosure policy.
