Applied Materials vs. AMD: Which AI Semiconductor Stock Is a Better Buy in 2026?
2026-10-01 19:08
•Mike Schwenk •The Motley Fool
••••• ••••••••• Axe Cap view
Applied Materials vs AMD: Where to Bet on AI Chips in 2026?
Applied Materials offers a steadier, undervalued play in AI semiconductor supply, while AMD carries growth hype but dilution risks.
Applied Materials (AMAT) is quietly building momentum with a solid balance sheet, record revenues, and a reasonable 23x P/E ratio. It’s a key supplier of chip-making equipment, meaning it benefits from the broader AI boom without riding the hype cycle. AMD, in contrast, is racing ahead with partnerships like OpenAI and Meta but at a steep 39.5x valuation. The dilution risk from those warrants hanging over AMD’s shares is rarely highlighted but meaningful, potentially cutting into shareholder value. For South Africans exposed to global tech via USD/ZAR, AMAT’s slower but steadier growth might look more attractive now. AMD’s high growth could accelerate if AI adoption soars, but that’s a gamble priced in. If the rand weakens sharply, it may boost revenue growth visibility for both, but supply chain disruptions could hit AMD harder given its reliance on TSM and GFS. I’m leaning toward Applied Materials, valuing durability over fireworks. this is just our opinion and not financial advice
Buy Applied Materials for steady AI exposure and trim AMD to reduce dilution risk and high valuation exposure. Watch USD/ZAR trends to gauge earnings translation into rand.
- AMAT
- AMD
- USD/ZAR
- AMD shareholder dilution from warrants
- TSM and GFS supply chain disruptions affecting AMD
- Rand volatility impacting USD earnings translation
7/10
Applied Materials and AMD offer different exposure to AI semiconductor demand. Applied Materials supplies chip manufacturing equipment with a lower valuation (P/E 23.4x) and improving growth trajectory, while AMD designs processors with faster 2025 revenue growth (34.3%) but faces potential shareholder dilution from OpenAI and Meta warrants covering ~20% of shares outstanding. The author recommends Applied Materials as the better buy, though both stocks have merit for long-term diversified portfolios.
Our take is based on reporting first published by The Motley Fool.