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A year ago, there was only Nvidia (NVDA) in the AI race. But now investors are looking at Advanced Micro Devices (AMD) as a potential competitor. Which AI stock should have a place in your portfolio? Let’s lay out the details so you can decide.
The State Of Nvidia
Nvidia designs semiconductors for use in AI, gaming, autonomous vehicles, robotics, 5G networks and data centers. While chip sales drive revenue, the company also supports a full platform of related offerings that developers use to create, deploy, run and scale enterprise applications on Nvidia’s hardware.
Nvidia established itself in the late 1990s by creating the graphics processing unit (GPU), primarily for use in gaming applications. In 2013, Nvidia CEO Jensen Huang saw a bigger picture for his company. He saw artificial intelligence as the future of computing—and believed Nvidia could lead that future. The company then began working on programmable GPUs to support complex computing operations.
Today, Nvidia is the recognized leader in AI infrastructure, selling far more AI chips than any competitor. The chip designer also maintains a customer list that includes the best tech stocks in the world.
Where AMD Stands Now
AMD has historically battled with Intel for market share in central processing units (CPUs). Intel remains dominant, but AMD has been a formidable competitor—at least since CEO Lisa Su spearheaded the launch of the company’s high-performance Zen architecture in 2017. Five years later, AMD’s market capitalization passed Intel’s for the first time.
AMD is now targeting the AI market and Su has made some key moves to compete with Nvidia. She quadrupled the company’s R&D budget and acquired Xilinx, Nod.ai and ZT Systems. Xilinx makes programmable processors, Nod.ai develops open-source AI software and ZT Systems’ designs and manufactures servers and related infrastructure for data centers.
AMD does not yet compete meaningfully with Nvidia. For the most recent quarter, AMD’s data center revenues were less than 10% of Nvidia’s. But as Intel struggles, AMD is positioning itself to secure a double-digit share in AI chips—which should be a sizable opportunity going forward.
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Comparing AI Strategies
Nvidia and AMD won’t necessarily compete head-to-head for AI-related revenue. Let’s look at their go-to-market strategies to understand why.
Nvidia’s AI Strategy
Nvidia’s original AI strategy was to be first and best. And the company has capitalized on this approach. Huang’s strategic vision combined with a proven product development process provides some insulation from even the best AI stocks.
As well, Nvidia doesn’t just make AI chips. The company maintains an entire platform around those chips, including optimized software and libraries, to support application development from start to finish. This platform approach is another competitive advantage that could make customers reluctant to switch to another provider.
AMD’s AI Strategy
AMD has played catch-up with Intel for years, and the company will likely use similar tactics to take a piece of the AI market from Nvidia. Providing better value is the crux of the strategy. AMD can do that by offering more performance for the price. That could mean similar performance at a lower price or slightly lower performance with a much smaller price tag.
Providing and pitching a comprehensive AI computing platform has been a lesser focus for AMD. However, the company has taken steps to broaden its offering. The recent acquisition of ZT Systems, for example, enables AMD to deliver a full set of computing and storage resources required to power AI data centers.
Financial Performance Comparison
Nvidia’s trailing 12-month revenues sum to about $96 billion, which is nearly four times more than AMD’s $23 billion. The earnings comparison isn’t quite as lopsided, with Nvidia delivering diluted EPS of $2.13 to AMD’s $0.84.
Both companies report AI-related revenues within their data center divisions. Nvidia’s data center revenue in the most recent fiscal quarter was $26.3 billion, up 154% from the prior year. AMD produced data center revenue of $2.8 billion, up 115% year over year.
Valuation And Investment Potential
The table below shows market capitalization, forward P/E ratio, price/book ratio, PEG and stock price upside for Nvidia and AMD.
Table data sources: Yahoo Finance, Market Beat.
As you can see, Nvidia is a much bigger enterprise. Its market cap of $2.89 trillion makes it the world’s third-largest public company, ahead of Alphabet and Amazon. Nvidia’s valuation metrics, particularly the price/book ratio, are also well higher than AMD’s. However, the upside according to analyst price targets is comparable.
You may also want to see what we think Nvidia will look like in five years.
Market Share And Competitive Position
Nvidia has a dominant market share position plus a reputation as the AI chip leader. AMD is working to establish itself as a solid second option.
Fortunately for AMD, the AI chip market is predicted to be large enough to be lucrative for two companies. Su has predicted global spending on AI accelerators to reach $400 billion by 2027. If AMD could capture 20% to 30% of that, the company’s data center revenues could increase sevenfold.
It’s also likely that the tech companies investing in AI infrastructure will want more than one supplier and more than one software stack. AMD’s development software, ROCm is an open-source solution, while Nvidia’s CUDA is proprietary. CUDA has a strong reputation, but some projects may require the flexibility of AMD’s open-source solution.
Product Offerings And Technological Leadership
Nvidia’s AI offering includes:
Specialized architectures Blackwell, Hopper and Ada Lovelace
HGX H200 high-performance GPUs and soon-to-launch Blackwell B200 GPU for data centers
GeForce RTX GPUs for AI-capable PCs
DRIVE
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Thor SoCs used in self-driving cars
Specialized software frameworks CUDA, deep-learning library TensorRT, Jarvis for chatbot AI, Omniverse for 3D simulation and Merlin for recommender systems
AMD’s AI line-up includes:
Specialized architectures AMD XDNA 2, AMD CDNA and AMD RDNA
Instinct MI300A accelerators and MI300X GPUs designed for high-performance workloads
Ryzen 7040 Series processors for AI-capable PCs
Versal adaptive SoCs
Software tools ROCm and Vitis AI
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Growth Opportunities
Multiple research companies and AMD’s CEO have predicted strong double-digit annual growth for AI infrastructure spending over the next several years. The growth opportunity is somewhat different for our two companies, however. In short, Nvidia will be playing defense, while AMD plays offense.
Nvidia Growth Opportunities
With a running start in the AI space, Nvidia now owns an estimated 80% market share. The quick rise to the top created extreme growth in revenues and profits, as tech companies rushed to build out their AI capabilities. Unfortunately for Nvidia, the spending may moderate just as competitors come to market with viable alternatives.
Nvidia can find growth, however, by doing what it does best: pushing the limits of what high-performance computing can do in terms of speed and efficiency. Improving its platform to bring AI computing to a wider market could be another source of growth.
The company won’t be complacent under Huang’s direction. Nvidia has recently shortened its product refresh cycle from two years to one year—presumably to keep pace with AMD’s update cadence.
AMD Growth Opportunities
AMD has more to gain and less to lose than Nvidia, which is the more interesting position to hold.
AMD chips are currently cheaper and about 80% as powerful as Nvidia’s according to AI software firm MosiacML. After testing AMD MI250 alongside Nvidia A100 last year, MosiacML CTO Hanlin Tang believes AMD can close the performance gap. That will be AMD’s path to solid market share and revenue gains, especially if the company stays competitive on price and can produce enough to meet demand.
Challenges And Risks
Both companies will have to manage supply constraints, regulations that limit the revenue opportunity in China as well as rising competition. But they also face specific challenges related to where each stands in its AI growth trajectory.
Nvidia Challenges And Risks
Nvidia’s biggest challenge will be defending its position. The sheer size of the market ensures fierce competition as GPU makers position themselves for a piece of AI spending.
To keep from losing market share, Nvidia will need to innovate and execute product rollouts flawlessly. Ongoing improvements in speed and efficiency will support higher spending even as the initial AI buildout slows.
In the absence of impressive product upgrades, Nvidia could face share losses as spending moderates. That would be a revenue headwind, which likely won’t sit well with Nvidia investors.
AMD Challenges And Risks
AMD’s primary challenge is establishing itself as the best second option in AI, while integrating four acquisitions made in the last two years. The acquisitions should support a more favorable competitive position, but it won’t be enough to overtake Nvidia’s dominance.
So, the big risk for AMD is missing its target and ending up competing for the third or fourth position in the industry. Supply constraints or strategic, product or execution errors could open the door for another player like Intel to win market share. For more information, see Nvidia vs. Intel.
Analyst Opinions And Market Sentiment
Analysts are optimistic about Nvidia stock and AMD stock. Both companies have an average rating of strong buy. With 40 analysts reporting on Nvidia, there are 20 strong buys, 17 buys and three holds. No one is recommending investors sell their NVDA positions.
The 30 ratings for AMD include 15 strong buys, 11 buys and four holds. As with NVDA, analysts don’t see a case for selling AMD currently.
To evaluate market sentiment, we can look at NVDA and AMD stock price trends relative to the broader market. NVDA has outperformed AMD and the S&P 500 by a wide margin over the last six months. Nvidia is up nearly 30%, the S&P 500 grew 10% and AMD has fallen 14%.
Performance in the last month, however, shows Nvidia as the loser. The company lost 10%, while AMD and the S&P 500 made slight gains. This is partly a function of Nvidia’s high valuation, which makes it more reactive to economic news.
Which AI Stock Is The Better Buy Right Now?
AMD is the better AI stock in terms of value and upside. Yes, the company is an underdog that’s unlikely to replace Nvidia as the recognized AI leader. But, AMD has operated from second place before and thrived under its current leader Su. Plus, the addressable market is so large that a smaller share position still means massive growth for AMD.
Nvidia already has a huge growth record going for it, but the company is quickly lapping the big AI-related gains it has generated to date. Comparisons will get harder from here on out and that could create more volatility for the NVDA stock price.
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