Enhanced AI Investment Option: Wolfspeed versus Advanced Micro Devices (AMD)
Suddenly, artificial intelligence became a significant economic powerhouse. In 2020, the global AI market was worth $93 billion, and it's projected to increase to $244 billion by 2025.
The AI surge is sparking demand for semiconductors, which are essential for AI systems. These components offer energy efficiency for data centers hosting AI tech and computing power to execute AI tasks. Investing in semiconductor stocks is an excellent strategy to capitalize on the expanding AI market.
Two promising semiconductor companies are Wolfspeed (-1.33%) and Advanced Micro Devices (-1.35%). Wolfspeed leads in silicon carbide (SiC) products, used in power applications. AMD manufactures specialized semiconductor chips for AI.
Both companies have faced share-price drops by December 16, creating potential buying opportunities. To analyze which is the superior AI investment for the future, let's explore each.
Wolfspeed's strategies and AI
AI systems can cost millions to operate, including their energy expenditures to power numerous AI machines. Wolfspeed's SiC products generate efficiency and reduce system size and weight, surpassing silicon power devices. As the AI market grows, so does the demand for SiC products.
Wolfspeed anticipates the SiC market growth will result in $3 billion in annual sales for the company. This is a significant jump from its $807.2 million revenue in the 2024 fiscal year, which ended on June 30.
In response to the anticipated demand, Wolfspeed is bolstering its SiC manufacturing capabilities, focusing primarily on its Mohawk Valley fabrication facilities in New York. This plant, opened in 2022, is boosting the company's revenue contribution.
Wolfspeed's Mohawk Valley facility contributed $49 million to its $194.7 million revenue in its 2025 fiscal first quarter, which ended on September 29. This is an increase from $4 million a year earlier.
However, Wolfspeed's expansion efforts are costing the company. Despite earning $194.7 million in Q1 sales, its cost of revenue was $230.9 million, resulting in a Q1 net loss of $282.2 million.
To cut costs, Wolfspeed is reducing its capital expenditures (capex). In its 2024 fiscal year, its capex was $2.1 billion, but it aims for a 43% reduction in fiscal 2025. Moreover, the company's CEO resigned in November.
AMD's AI approach
AMD sees their sales increasing for years, driven by the escalating demand for more compute, as declared by CEO Lisa Su. She is referring to AI's role in boosting computer processing power.
AMD excels in accelerated computing, which enhances compute power for tasks like AI data crunching. AMD sells specialized components for accelerated computing, such as graphics processing units (GPUs) and accelerators, enabling AI systems to perform quickly and effectively. As a result, its data center revenue soared.
AMD's data center revenue jumped 122% year over year to a record $3.5 billion in its fiscal Q3, which ended on September 28. This boosted the company's total Q3 sales by 18% year over year, reaching $6.8 billion. Net income also increased by 158% to $771 million.
However, gaming-segment sales, once a significant revenue contributor, declined by 69% year over year to $462 million. This downturn partially offset AMD's gains in its data center division.
Choosing between Wolfspeed and AMD
When considering whether to purchase Wolfspeed or AMD, take note of potential U.S. government tariffs and export restrictions on semiconductor products, which could impact semiconductor companies' sales. Current downward pressure on the price of semiconductor stocks is a result of these government actions.
Nevertheless, Wolfspeed and AMD's in-demand technologies can still generate business growth due to the prolonged trend of AI. Over the long term, their innovative technology positions them to recover from their recent stock-price declines.
An additional key consideration is stock valuation. To determine this, let's examine each company's price-to-sales (P/S) ratio, a measure of investors' willingness to pay for each dollar of sales.
The chart reveals Wolfspeed's P/S multiple is lower than AMD's and is at its lowest in years. This indicates that Wolfspeed's stock represents better value compared to AMD.
However, Wolfspeed's business is contending with numerous challenges, such as substantial costs, lack of profitability, and CEO resignation. Investors with a high-risk tolerance should only consider purchasing Wolfspeed shares.
For this reason, between these two semiconductor titans, AMD emerges as the superior AI stock to invest in for the long term.
Given the text, here are two sentences that contain the words 'investing', 'finance', and 'money':
Investing in semiconductor stocks, such as Wolfspeed or Advanced Micro Devices, is an excellent strategy to capitalize on the expanding AI market, as these companies produce essential components for AI systems.
Analyzing each company's financial metrics, like their price-to-sales (P/S) ratio, can help investors determine which AI stock, be it Wolfspeed or AMD, offers the best value for their money.
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