Artificial Intelligence (AI) is a hot sector for investing and is helping the stock market reach new highs in 2024. Two of the biggest beneficiaries since the rise of AI are advanced microdevices from the semiconductor giants. (AMD) -2.92%)) And its major rival Nvidia (NVDA) -4.05%)).
Both sell graphics processing units (GPUs), the hardware used in data centers to enable artificial intelligence. AI systems have to sift through piles of data, and GPUs are the components that enable this data-intensive task.
GPU sales have led to AMD and NVIDIA revenues at high prices. The pair is positioned for more growth as tech companies build data centers to house AI systems. For example, Facebook’s parent meta platform is building data centers of small city size.
The amount of hardware required for such a huge data center suggests that AMD and Nvidia’s future sales growth is likely to be high, so it would be ideal to own both stocks. But if you only need to choose one, which semiconductor company is better AI investment over the long term? Let’s look at each one to reach the answer.
Why invest in AMD?
AMD’s sales growth has been astounding due to the current AI frenzy. To get you to know what that means, in the fourth quarter, which ended December 28th, the company’s sales to the data center market rose 69% year-on-year to a record $3.9 billion I did. This led to AMD’s fourth quarter total revenues increased 24% year-on-year to $7.7 billion.
The company also boasted a strong Q4 balance sheet. The total assets of $69.2 billion overturned the total liability of $11.7 billion.
Despite these excellent results, AMD strains have fallen for several weeks. This began in earnest after Wall Street was rattled with the arrival of Chinese AI startup Deepseek on January 27th. This is just a small portion of the billions US companies have spent building AI, and could boost AMD sales.
On this topic, AMD CEO Lisa Su said, “We believe that model and algorithm innovation is a good fit for AI adoption, especially compared to Deepseek and Look.” In short, she believes that low-cost AI means more organizations can afford to adopt the technology, and can translate into increased customer demand for AMD products in the long term.
For Nvidia
Nvidia’s stock was not affected by Deepseek’s arrival and fell along with its semiconductor siblings. Nvidia’s stocks then bounced back. This makes sense because the business shows no signs of slowing down.
In the third quarter of the third quarter, which ended October 27th, the company’s revenue reached a record $35.1 billion, up 94% year-on-year. Like AMD, Nvidia’s grand sales growth was thanks to the data center business. The division contributed $30.8 billion in third quarter sales, growing 112% year-on-year.
Nvidia’s sales are expected to continue to increase. The company forecasts its fourth quarter revenue of approximately $37.5 billion. This is a 70% jump from the previous year’s $22.1 billion. The company reported its fourth quarter results on February 26th.
Additionally, Nvidia is a participant in the US government’s Stargate program and plans to invest $5 trillion in AI infrastructure. This should further improve Nvidia’s revenue growth as the project unfolds.
The company’s successful sales led to strong financials. Nvidia’s third quarter balance sheet included $96 billion in total assets and $30 billion in total liabilities. The third gross profit margin of 75% was excellent, far better than AMD’s fourth quarter 51%. This metric shows that Nvidia effectively manages costs and improves profits.
Choice of AMD and NVIDIA
Both AMD and Nvidia offer reasons for investment given the healthier business and rising sales. So let’s look at another important consideration and decide on two ratings: assessment.
To do this, we use the price to revenue (P/E) ratio. This is a metric that shows how much an investor pays for dollar-worthy revenue.
Data by ycharts.
AMD’s P/E multiples fell significantly last year, indicating that they are more valuable than they have in the past. The decline reflected a decline in its stock price, and was a hit not only due to the arrival of Deepseek, but also due to the fourth quarter data center results failing to meet Wall Street’s high expectations.
Despite the decline, when comparing AMD’s P/E ratio with its rivals, it is even more than twice as much as Nvidia at the time of writing. This makes Nvidia stock even better value.
Also, AMD’s Lisa Su, Nvidia’s visionary CEO and founder Jensen Huang, foreshadowed the need for GPUs in 1999 and founded his company as the leader of the space. Currently, Nvidia controls the AI semiconductor market with an estimated GPU market share of 90%.
Huang also realized that GPUs can be applied to AI, and in 2016 offered Openai the first supercomputer specifically designed for artificial intelligence. Openai then created ChatGpt and set up the current AI Frenzy.
Putting together Jensen Huang’s visionary leadership, Nvidia’s track record of AI success, and its excellent stock valuation, Nvidia will be the winner as a better long-term investment in AI.
Randi Zuckerberg, a former director of market development, Facebook spokeswoman and sister to Metaplatform CEO Mark Zuckerberg, is a member of Motley Fool’s board of directors. Robert Izquierdo has advanced microdevice, meta platform and Nvidia positions. Motley Fool features advanced microdevice, meta platforms and Nvidia, and recommends. Motley Fools have a disclosure policy.
