Are AI Stocks Losing Their Luster? A Look at Nvidia and AMD

Has the excitement around artificial intelligence (AI) stocks diminished? This year, many leading AI stocks, including Advanced Micro Devices (NASDAQ: AMD) and Nvidia (NASDAQ: NVDA), have seen declines. Both companies have dropped approximately 15% so far in 2025, surpassing the S&P 500‘s modest decline of 4%.

Investors recognize AI’s massive potential to transform industries, yet many are scaling back their investments. Those with a long-term perspective might find this a good time to consider adding a top AI stock to their portfolio. When comparing AMD and Nvidia, which stock presents a better option today?

Valuation Comparison: Nvidia vs. AMD

Nvidia ranks among the world’s most valuable companies, boasting a market cap of $2.8 trillion. Although this figure has declined from its peak of over $3 trillion last year, it remains nearly 17 times the value of AMD, which has a market cap of around $165 billion. Even though AMD is substantial in size, Nvidia’s valuation frames it as relatively small.

Despite Nvidia’s higher market cap, its valuation may seem more favorable when examining earnings. Last year, AMD reported a profit of $1.6 billion, while Nvidia—whose fiscal year concludes in January—generated $72.9 billion in earnings over the last four quarters. Nvidia’s rapid growth has helped maintain a low price-to-earnings (P/E) ratio, averaging a profit margin of 56%.

In contrast, AMD’s profit margin is only 6%. Therefore, when considering earnings per share, AMD appears to be the pricier stock.

Potential Upside: AMD and Nvidia

While both stocks are underperforming this year, Nvidia has increased by about 29% over the past 12 months, whereas AMD has declined by 33%. There’s a case for AMD to rally, particularly if its AI chips can effectively compete with Nvidia’s high-end products. CEO Lisa Su has even suggested the company could generate “tens of billions of dollars in annual revenue” from its AI offerings.

If AMD can achieve this growth, it might attract further investment and raise its valuation. However, AMD continues to lag significantly behind Nvidia, which doubled its revenue last fiscal year while AMD’s sales only grew by 14%. For AMD to improve its P/E multiple, it must enhance its profit margins. Without these improvements, the stock may struggle to shed its premium pricing.

Presently, Nvidia leads the market with ongoing innovation and development of new AI chips. Until AMD demonstrates it can provide notable competition, its upside potential may remain limited.

Current Recommendation: Choose Nvidia

While AMD might present a potential long-term investment, its operational uncertainties and risks make it less appealing right now. The company must show that it can compete effectively against Nvidia, in addition to improving its single-digit profit margin.

Given Nvidia’s robust financial performance, more attractive valuation, and dominant market presence, it stands out as the superior AI stock to consider today.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.