Why AMD and NVIDIA Are Bargains Amid China Headwinds

The semiconductor sector faces its most complex geopolitical challenge in decades, as U.S.-China trade tensions over AI chips have sent Advanced Micro Devices (AMD) and NVIDIA’s stocks reeling. Yet for long-term investors, the pain is already priced in—and the setup for a rebound is compelling.

"text2img"Advanced Micro Devices (AMD) and NVIDIA engineers working alongside AI chips and server hardware in a data center." /text2img

The China Overhang Is Already in the Numbers

Both companies have quantified the financial drag of U.S. export restrictions, with AMD projecting a $1.5 billion annual revenue hit from sales curbs to China, while NVIDIA took a staggering $5.5 billion charge in Q1 2025 for stranded inventory and commitments tied to its China-bound H20 chips. Analysts now expect China’s contribution to NVIDIA’s revenue to drop to near zero from its prior 10-20% range.

"visual"AMD and NVIDIA stock performance YTD 2025 vs. S&P 500" /visual

The market has punished both stocks accordingly. Year-to-date through May 2025, AMD’s shares are down 17%, and NVIDIA’s have fallen 13%, significantly underperforming the S&P 500’s flat trajectory. Yet these declines may have overdone the pessimism.

Why the Downturn Creates an Opportunity

1. Valuations Reflect the Worst-Case Scenario

AMD trades at a price-to-sales (P/S) ratio of 6.0x, below its 10-year average of 7.2x, despite 36% annual revenue growth in Q1 2025. NVIDIA’s P/S of 4.4x is also below its 5-year average of 5.8x, even as its data center business—its growth engine—expanded 57% year-over-year.

"visual"AMD and NVIDIA gross margins over 5 years" /visual

2. Near-Term Costs Won’t Derail Long-Term Trajectory

The $1.5 billion and $5.5 billion charges are largely one-time hits tied to inventory and licensing delays. By contrast, the $50 billion addressable AI chip market in China remains intact, and U.S. policymakers are now debating easing some restrictions. For instance, a potential rollback of Biden-era AI diffusion rules—set to take effect in May—could reduce compliance costs and open new pathways for sales.

3. AMD’s Diversification Offers a Margin of Safety

While NVIDIA stakes its future on AI’s exponential growth, AMD benefits from a broader portfolio:
- Data Center: Its Instinct GPUs and EPYC CPUs are gaining share against Intel.
- PC/Console: Strong laptop chip sales (up 68% in Q1) offset gaming headwinds.
- Embedded Systems: Xilinx’s industrial IoT applications provide stable cash flow.

This diversification has kept AMD’s gross margins at 43%, a level that rivals its rivals’ best quarters.

4. NVIDIA’s Software Moat Remains Unchallenged

Despite its China woes, NVIDIA’s CUDA ecosystem—used in 90% of AI research papers—ensures a structural advantage. Even as China develops alternatives like Huawei’s Kunpeng, the time and cost to replicate CUDA’s 30-year software legacy are prohibitive.

Catalysts to Watch

• Q2 Earnings: AMD’s June report should confirm its AI revenue “air pocket” (a projected flat quarter) is temporary, while NVIDIA’s May 28 results could surprise if export licenses are approved.
• Trade Policy: The May 15 deadline for new U.S. export rules could ease restrictions on chips not directly tied to AI.
• Product Cycles: AMD’s MI350/MI400 GPUs and NVIDIA’s Blackwell Ultra promise performance boosts that could reignite demand.

Risks

• China Smuggling: U.S. proposals to track chips post-sale could add compliance costs.
• Macroeconomic Slowdown: A recession could delay corporate AI spending.

Conclusion: The Time for Contrarians Is Now

The math is clear: AMD and NVIDIA’s shares now reflect the worst-case scenarios of China restrictions and margin pressure. AMD’s $90 price target (implying 30% upside) and NVIDIA’s $165 consensus (20% upside) hinge on stabilizing trade policies and executing on next-gen AI products.

Consider this: NVIDIA’s valuation is now half its peak P/S ratio, and AMD’s stock trades at a 30% discount to its 2021 AI hype cycle highs—despite stronger fundamentals today. With AI adoption in hyperscale cloud, healthcare, and autonomous driving still in early innings, the pain of today’s trade war could be tomorrow’s buying opportunity.

Final Call: Aggressive buyers can dip into both names at current levels, with a preference for NVIDIA’s pure-play AI exposure and AMD’s balanced portfolio. The next 12 months will test whether the market’s pessimism was premature—or if these two giants can finally turn the tide.