Better Artificial Intelligence Stock: Nvidia vs. AMD

Plenty of tech companies are all-in on artificial intelligence, but perhaps two of the most prominent players in AI's growth 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 which is the better artificial intelligence stock? Let's take a closer look.

The case for Nvidia

If you're already interested in AI stocks, then you've surely come across Nvidia. The company is the clear leader in the AI semiconductor market, with an estimated 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 such a significant head start in the AI hardware race and continues to roll out new processes that its customers clamor for (the new H200 chip being one of them) that it's no wonder Nvidia's share price has spiked 379% over the past three years.

But it's not just that Nvidia's lead in AI semiconductors is well established; the company is also experiencing massive financial benefits from its lead. In its second quarter (which ended July 28) financial results, Nvidia's total revenue jumped 122% from the year-ago quarter to $30 billion, and non-GAAP (adjusted) earnings per share of $0.68 rose 152%.

While Nvidia's shares are unlikely to see the same gains they've made over the past few years, I think they still have more room to run because tech companies are making massive investments in AI infrastructure. Goldman Sachs estimates AI data center spending will total $1 trillion over the next few years. As that spending ramps up, Nvidia's lead in the AI processor space is sure to benefit.

The case for AMD

AMD has a similar opportunity as Nvidia and is another top graphics processor company that's taking advantage of AI's growth.

In the company's third quarter (ended Sept. 28), AMD reported revenue of $6.8 billion, up 18% from the year-ago quarter, and diluted generally accepted accounting principles (GAAP) earnings per share of $0.47, an impressive 161% year-over-year increase.

One of the most notable areas of growth for AMD is in the company's data center segment, which includes GPU sales of its AI processors. The company's data center revenue spiked 122% in the third quarter to $3.5 billion. Like Nvidia, AMD is benefiting from large tech companies investing tons of money into building AI data centers, which will likely bring years of infrastructure spending.

For example, AMD's management said on its third-quarter earnings call that Microsoft and Meta expanded their 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 family of GPT 4 models," AMD CEO Lisa Su said.

The recent increase in AI chip demand caused AMD's management to raise its data center GPU revenue estimates for the year to $5 billion, up from an expectation of just $2 billion at the beginning of this year.

Nvidia is the better AI stock

While both companies are already benefiting from AI, Nvidia's clear lead in GPU market share and superior revenue growth make it the better AI stock over the long term.

Additionally, Nvidia's stock is technically cheaper than AMD's. While not inexpensive, Nvidia's shares have a price-to-earnings ratio of 69, which is far cheaper than AMD's stock's P/E ratio of 130.

Both stocks will likely continue to benefit from accelerating AI growth, but if you want to own the leading AI chip company, Nvidia is your best bet.