The semiconductor arena is one of the most exciting and innovative environments that has rewarded investors handsomely over the last several years. Semiconductors, also referred to as microchips, are a bright spot of modern technology – they exist in almost every aspect of our lives. From freezers to computers, they allow the world to keep spinning.

A hawkish Fed, supply-chain issues, and a widespread microchip shortage have played spoilsport for most semiconductor-related and technology companies. These once high-flying stocks that displayed zero signs of ever slowing down have almost come to a complete halt in 2022.

Two giants in the semiconductor arena – Advanced Micro Devices (AMD Quick QuoteAMD - Free Report) and Nvidia (NVDA Quick QuoteNVDA - Free Report) – have quickly become two of the go-to stocks when investing in this lucrative space. 2022 has not been kind to either of these companies, as illustrated in the chart below that compares the two while blending in the S&P 500 for a benchmark.

Image Source: Zacks Investment Research

As we can see, both NVDA and AMD have had their valuations slashed. Overall, it seems that paying extremely high valuation multiples for these stocks is over. Down well off their 2021 highs, it raises a valid question – which company is the better investment moving forward? Let’s look at forecasted growth rates and valuation metrics to paint a clearer picture.

Nvidia

Nvidia (NVDA Quick QuoteNVDA - Free Report) is the worldwide leader in visual computing technologies and the inventor of the highly successful graphic processing unit (GPU).

Nvidia shares have been sent down the drain, nearly 45% off all-time highs of approximately $335 per share in late November 2021. The adverse price action has caused its forward-earnings multiple to slide down to 40.3X, well below its 93.5X high in 2021 and respectfully below its median of 49.9X over the last five years. Additionally, the current value reflects a 117% premium relative to the S&P 500’s forward P/E ratio of 18.5X and is the lowest that it has been since March of 2020.

Over the last 60 days, one analyst has upped their outlook for the upcoming quarterly report, although the Consensus Estimate Trend remains unchanged, forecasting earnings of $1.30 per share. Over its last four quarterly reports, the company has acquired a trailing average EPS surprise of a respectable 7%, and in its latest quarter, the company exceeded the Zacks Consensus Estimate by 8%.

Looking forward, the current Zacks Consensus Estimate for current fiscal year earnings sits at $5.56 per share, reflecting a sizable 25% jump in earnings year-over-year. Building on that, earnings are forecasted to grow by 14% for the next fiscal year. Additionally, NVDA is forecasted to expand its bottom line by 17% over the next three to five years.

Revenue estimates are also looking mightily strong; NVDA is forecasted to rake in $34.6 billion in the current fiscal year, a notable 29% expansion in the top line year-over-year.

Nvidia - Quarterly Revenue

Image Source: Zacks Investment Research

NVDA is currently a Zacks Rank #3 (Hold) with an overall VGM Score of a B.

Advanced Micro Devices

Advanced Micro Devices (AMD Quick QuoteAMD - Free Report) is a multinational semiconductor company that develops computer processors and related technologies for business and consumer markets.

Advanced Micro Devices shares have also had a brutal stretch in the market, down 42% since reaching all-time highs of approximately $162 per share in late November 2021. The tough stretch has caused its forward-earnings multiple to slip down to 25.2X, an absolute fraction of its 67.8X high in 2021 and well below the median of 45.5X over the last five years. Additionally, the valuation metric represents a 36% premium relative to the S&P 500’s value and is the lowest since April 2018.

Two analysts have recently positively revised their upcoming quarterly estimates, boosting the Consensus Estimate Trend by 2.1% and reflecting quarterly earnings of $0.97 per share. Throughout its last four quarterly reports, the company has an average EPS surprise in the double-digits of 19%, and in its latest quarter, the company smoked the Zacks Consensus Estimate of $0.91 per share by a considerable 24% and reported quarterly EPS of $1.13.

Pivoting to forecasted growth rates for the current year, the consensus EPS estimate currently sits at $4.06, reflecting a very sizable year-over-year 50% growth in earnings. The Zacks Consensus Estimate has earnings growing by roughly 18% year-over-year for AMD's next fiscal year. Furthermore, the company’s bottom line is expected to expand by 33% over the next three to five years.

Like NVDA, AMD’s top-line forecast for the current year shows signs of strength. The Zacks Consensus Estimate has AMD raking in nearly $25 billion in FY22, a 50% increase from the previous year’s revenue value of $16.4 billion.

Advanced Micro Devices - Quarterly Revenue

Image Source: Zacks Investment Research

AMD is currently a Zacks Rank #3 (Hold) with an overall VGM Score of an A.

Final Decision

It’s not easy to pick a favorite between these two chip giants. While both companies are very thrilling and innovative investments, I believe that AMD is currently the better microchip stock to buy right now, and here’s why – AMD shares have displayed a higher level of defense throughout the tech meltdown, the company is trading at more attractive valuation levels, has higher forecasted earnings growth, and has a higher overall VGM score. Additionally, AMD’s long-term earnings growth is forecasted to be much higher than Nvidia’s.