Both companies are benefiting from the growth of AI, but only one is a clear leader.
Many tech companies are involved in artificial intelligence, but perhaps two of the most prominent players in the growth of AI are semiconductor companies that have been at the forefront of AI processing for years.
Nvidia (NVDA -1.36%) and Advanced Micro Devices (AMD -3.02%) both have a unique role to play as AI infrastructure spending increases. But what is the best artificial intelligence stock? Let’s take a closer look.
Image source: Getty Images.
The case for Nvidia
If you’re already interested in AI stocks, you’ve definitely come across Nvidia. The company is a clear leader in the semiconductor AI market, with approximately 70% to 95% of AI data centers using its GPUs.
That dominance will be very difficult for Nvidia’s competitors to overcome. The company has a head start in the AI ​​hardware race and continues to release new processors that customers are clamoring for (the new H200 chip being one of them) surprisingly Nvidia’s share price has risen 379% over the last three. years.
But Nvidia’s lead in AI semiconductors isn’t just well-established; the company also receives significant financial benefits from his leadership. In its second quarter (which ended July 28), Nvidia’s total revenue jumped 122% from the previous quarter to $30 billion, and non-GAAP (adjusted) earnings per share rose $ 0.68 152%.
While Nvidia shares are unlikely to see the same gains they have in the past few years, I think they still have more room to run as tech companies do massive investments in AI infrastructure. Goldman Sachs estimates that AI data center spending will total $1 trillion over the next few years. As that spending rises, Nvidia’s lead in the AI ​​processor space is sure to benefit.
The case for AMD
AMD has the same opportunity as Nvidia and is a leading graphics processor company that is taking advantage of the growth of AI.
In the company’s third quarter (ended September 28), AMD reported revenue of $6.8 billion, up 18% from the year-ago quarter, and reduced generally accepted accounting principles earnings ( GAAP) per share of $0.47, a staggering 161% year-over-year increase.
One of the most notable growth areas for AMD is in the company’s data center division, which includes GPU sales of its AI processors. The company’s data center revenue rose 122% in the third quarter to $3.5 billion. Like Nvidia, AMD is benefiting from large tech companies investing tons of money in building AI data centers, which will apparently take years of infrastructure spending.
For example, AMD management said on their earnings in the third quarter Microsoft and Meta expanded the use of the company’s MI 300X processor in the quarter. Microsoft is even tapping AMD’s MI 300X for “multiple co-pilot services powered by the GPT 4 family of modules,” said AMD CEO Lisa Su.
The recent surge in AI chip demand caused AMD’s data center management to raise its GPU revenue estimates for the year to $5 billion, up from expectations of just $2 billion at the start of this year.
Nvidia is the best AI stock
While both companies are already benefiting from AI, Nvidia’s clear lead in GPU market share and better revenue growth make it the better AI stock in the long run.
Furthermore, Nvidia stock is technically cheaper than AMD stock. While not cheap, Nvidia shares have a price-to-earnings ratio of 69, which is much cheaper than AMD stock’s P/E ratio of 130.
Both stocks are likely to benefit from accelerating AI growth, but if you want to be a leading AI chip company, Nvidia is your best bet.
Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Goldman Sachs Group, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
#Artificial #Intelligence #Stock #Nvidia #AMD #Motley #Fool