NVIDIA Corporation continues to lead the data center computing market, backed by significant investments in artificial intelligence (AI) infrastructure, offering a strong long-term advantage.
However, Advanced Micro Devices, Inc. (AMD) is closely following behind and could narrow the gap with its upcoming innovations. Let’s dive into which company is the better investment right now.
Why Investors Are Excited About NVIDIA & AMD
DeepSeek has disrupted the AI sector by claiming it can build large language models (LLMs) for only $5.6 million. This cost is significantly lower than what major U.S. tech companies typically invest in computing power for their AI models.
Although DeepSeek’s low-cost LLM development poses a challenge, it may not heavily impact NVIDIA. The reason? Lower costs can drive more usage of computing power, benefiting the so-called “magnificent seven” stocks, including NVIDIA. Additionally, NVIDIA has the resources to pivot toward more cost-effective products, which would enhance the entire AI ecosystem.
Despite the claims from DeepSeek, industry giants such as Meta Platforms, Inc. (META) and Microsoft Corporation (MSFT) are investing billions in AI infrastructure, indicating strong growth potential for NVIDIA. The company’s advanced Blackwell chips are gaining traction among major tech players, helping to accelerate growth. These chips provide faster AI interfaces and improved energy efficiency (read more: Buy NVIDIA Stock, DeepSeek’s Threat is Exaggerated).
Meanwhile, AMD has seen remarkable success by focusing on its data center business and assisting clients with AI integration. Last year marked a pivotal moment for AMD, with a near doubling of data center revenues thanks to the increasing adoption of its EPYC processors.
Looking to the future, AMD’s recent acquisitions of Silo AI and ZT Systems are promising, as they will aid customers in developing AI systems. Importantly, AMD remains a leader in PC central processing units (CPUs) due to its expertise and the x86 architecture license.
Why NVIDIA Outshines AMD as the Preferred Investment
While both NVIDIA and AMD stocks present attractive growth opportunities, NVIDIA stands out as the clear preference among investors. The reason lies in the widespread adoption of NVIDIA’s CUDA software platform, while AMD’s ROCm platform struggles to gain similar traction. The CUDA X framework has solidified NVIDIA’s competitive edge, and its commanding presence in the growing GPU market has created substantial barriers to entry for competitors.
Moreover, developers are likely to remain loyal to CUDA due to the complexities involved in transitioning to a new infrastructure, putting AMD at a disadvantage in the data center competition for now. To illustrate, AMD reported $3.9 billion in data center revenues for the fourth quarter of 2024, a stark contrast to NVIDIA’s impressive $30.8 billion during its fiscal third quarter ending on October 27. NVIDIA is anticipated to release its fiscal fourth-quarter results on February 26.
Additionally, NVIDIA operates more efficiently in terms of profitability. The company’s net profit margin stands at an impressive 55.7%, whereas AMD’s margin is considerably lower at 6.4%, highlighting NVIDIA’s superior profitability.
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Currently, NVIDIA holds a Zacks Rank #2 (Buy), while AMD has a Zacks Rank #3 (Hold). You can view the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
