Can Advanced Micro Devices (AMD) Compete with Nvidia in AI?
In the realm of semiconductor stocks, Nvidia stands out as the dominant force. Over the past couple of years, Nvidia has not only led the chip sector but is also paving its way to the top in the artificial intelligence (AI) industry.
However, amidst the excitement surrounding Nvidia, many investors may overlook other promising options in the chip sector. As we approach 2024, it’s a good time to explore less obvious opportunities that may lie ahead.
Today, I will argue why investing in Advanced Micro Devices (NASDAQ: AMD) could be particularly attractive right now. Could AMD be the next Nvidia? I believe it could be.
How Does Nvidia Compare to AMD Right Now?
At first glance, it may seem that Nvidia is far ahead of AMD in the AI race. Over the past year, Nvidia recorded a staggering $113 billion in revenue, nearly five times that of AMD.
Yet, examining the sources of this revenue can shift your perspective on AMD’s growth potential in relation to Nvidia.
The table below shows the annual revenue growth rates for the data center businesses of both AMD and Nvidia:
| Category | Q3 2023 | Q4 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
|---|---|---|---|---|---|
| Nvidia data center revenue growth % year over year | 279% | 409% | 427% | 154% | 112% |
| AMD data center revenue growth % year over year | 0% | 38% | 80% | 115% | 122% |
Data Source: Investor relations.
Over the past year, Nvidia’s data center growth has slowed significantly, while AMD has shown impressive growth from almost nothing to comparable levels with Nvidia.
It’s essential to note that Nvidia isn’t in imminent danger; the company is still reporting quarterly growth above 100%.
This doesn’t automatically imply that Nvidia is the better investment. I will illustrate how AMD has developed a strong data center business and discuss why 2025 could be a significant turning point for them.
Image Source: Getty Images.
2025: A Key Year for AMD?
A major reason for Nvidia’s remarkable growth is its previous lack of competition in the graphics processing unit (GPU) sector. However, this dynamic is shifting with AMD’s launch of the MI300 accelerator, which challenges Nvidia’s established lead.
Some may argue that Nvidia’s new Blackwell GPU architecture will solidify its market dominance, but consider this: many of Nvidia’s customers, including Microsoft and Meta Platforms, are using AMD’s MI300 GPUs.
Additionally, tech giants like Alphabet and Amazon are investing in their own chip developments to reduce their dependency on Nvidia.
Furthermore, AMD is preparing to launch a successor to the MI300, the MI325X, in 2025 and plans to introduce the new MI400 architecture in 2026.
Thus, I see the Blackwell launch as less of a threat to AMD. The company is innovating rapidly, and as AI infrastructure investments are projected to grow, the upcoming MI325X and MI400 could enable AMD to capture more market share from Nvidia.
Is Now the Right Time to Buy AMD Stock?
As of now, AMD is trading at a forward price-to-earnings (P/E) ratio of 29, while Nvidia’s forward P/E ratio stands at 34.
With Nvidia’s Blackwell launch on the horizon, expectations for the company may increase significantly. If Nvidia fails to meet those expectations, a sell-off could occur.
Given AMD’s lower valuation compared to Nvidia, I believe the market is not fully recognizing AMD’s upcoming GPU releases. The existing traction from the MI300, paired with the anticipated MI325X, positions AMD well to gain ground against Nvidia, especially as its clients seek alternative GPU options.
Now may be an opportune time to invest in AMD stock and hold for potential long-term gains.
Should You Invest $1,000 in Advanced Micro Devices Right Now?
Before purchasing shares of Advanced Micro Devices, take this into account:
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
