Exploring AI Investment: Nvidia’s Dominance and AMD’s Potential

Nvidia (NASDAQ: NVDA) has proven itself to be a remarkable long-term investment. Since 1999, its share price has surged over 285,000%, resulting in a market capitalization that now exceeds trillions of dollars. The primary driver of Nvidia’s impressive valuation is the rapid growth of artificial intelligence (AI).

However, Nvidia is not the only player benefitting from the significant increase in AI spending. Long-term, another chipmaker could pose a serious challenge to Nvidia. Unlike Nvidia’s highly valued stock, this smaller competitor offers a more attractive valuation for patient investors seeking substantial long-term growth.

Where to invest $1,000 right now? Our analyst team has identified the 10 best stocks to buy today. Learn More »

AI Spending Set to Exceed Expectations

In recent years, the surge in AI innovation has captured widespread attention. The ChatGPT platform, for example, attracts billions of visitors monthly, with its COO confirming over 400 million active monthly users, up from approximately 300 million just a few months earlier. This rapid growth unfolds amidst fierce competition from other AI models like DeepSeek, which has similarly attracted hundreds of millions of new users.

While this growth is evident on the consumer side, AI adoption among businesses is also gaining momentum, even though overall adoption rates in the U.S. are still below 10%. This low penetration presents significant potential for long-term expansion. Much like the early days of the internet, the full impact of this game-changing technology will likely be underestimated.

Research from McKinsey & Co indicates that generative AI alone may realize an economic impact of $2.6 trillion to $4.4 trillion through business adoption. By 2040, revenues from AI software and services could reach a staggering $1.5 to $4.6 trillion, a considerable increase from just $85 billion in 2022. This suggests that the advancement of AI could outpace most current expectations.

This environment bodes well for Nvidia, whose graphics processing units (GPUs) are essential for AI applications. Nvidia’s GPUs command a significant market share, estimated between 70% and 95% for AI-related tasks. However, history shows that market dominance can shift, and it’s uncertain how long Nvidia will maintain this leading position. Regardless, the broad market for these technologies will continue to expand.

Why Advanced Micro Devices Could Compete with Nvidia

While a considerable challenge lies ahead, if one company has the potential to rival Nvidia’s scale within the next decade, it is Advanced Micro Devices (NASDAQ: AMD). Currently, AMD faces disadvantages in tech capabilities and market presence. Nonetheless, the company is making strategic investments aimed at long-term competition.

At present, AMD’s market capitalization is a fraction of Nvidia’s total. Furthermore, its valuation ratios, such as the price-to-sales ratio, are significantly more attractive. Despite these challenges, AMD continues to increase its research and development expenditures, which now represent about 25% of its revenue, compared to Nvidia’s 10% of sales.

This commitment to innovation has enabled AMD to launch next-generation gaming GPUs, including its Radeon RX 9000 series. Additionally, the introduction of MI325X chips will help AMD compete more directly with Nvidia’s Blackwell chips, and management has announced an acceleration of its product launch timeline to release new chips annually, capitalizing on the growing demand for AI technology.

Can AMD surpass Nvidia in the coming seven years? Nvidia’s rapid ascent proves it’s possible, yet the journey will be challenging. The company’s persistent reinvestment in new products positions it well for future growth amid increasing market demand. Given its relatively lower valuation, AMD represents an enticing speculative opportunity for investors with a long-term outlook.

A Second Chance at a Lucrative Investment Opportunity

Have you ever thought you missed the chance to buy into the most successful stocks? If so, this news may interest you.

Occasionally, our expert analysis team identifies a “Double Down” Stock recommendation for companies poised for significant growth. If you think you missed out on investing, now may be the opportune moment to consider these stocks before they appreciate further. The numbers reinforce this:

• Nvidia: An investment of $1,000 when we doubled down in 2009 would be worth $292,207!*
• Apple: A $1,000 investment when we doubled down in 2008 would have grown to $45,326!*
• Netflix: A $1,000 investment made in 2004 would be worth $480,568!*

Currently, we are issuing “Double Down” alerts for three exceptional companies, and this opportunity might not come again soon.

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*Stock Advisor returns as of March 3, 2025

Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends both 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.