Spotlight on the AI Chip Race: Nvidia vs. AMD – Who Will Lead?
A Battle of Giants in the GPU Market
Discrete GPUs, originally crafted for gaming and graphics tasks, have evolved into essential tools for data centers, processing complex artificial intelligence (AI) calculations. Unlike CPUs, which handle one data point at a time, GPUs excel at parallel processing, quickly managing many numbers at once. This pivotal advantage positions high-performance data center GPUs as crucial players in the AI boom. Nvidia (NASDAQ: NVDA) and Advanced Micro Devices (NASDAQ: AMD) dominate this sector, but which company currently represents the better investment in AI technology?
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Diving into Nvidia and AMD’s Market Positions
Nvidia is the overwhelming leader in the GPU industry, holding a commanding 90% share of the discrete GPU market as of the third quarter of 2024, a significant increase from 82% the previous year. In contrast, AMD’s share dropped from 17% to 10%. According to TechInsights, Nvidia accounted for 98% of all data center GPU shipments in 2023.
The latest quarter saw Nvidia derive 88% of its revenue from the data center market, a shift from its earlier gaming focus. AMD, on the other hand, offers a range of processors, including GPUs, x86 CPUs, and its integrated APUs, which combine CPUs and GPUs for various devices. As of the first quarter of 2025, AMD held 38% of the x86 CPU market, while Intel led with 60%.
In its offerings, AMD provides Ryzen CPUs and Radeon GPUs for personal computers, while servers utilize Epyc CPUs and Instinct GPUs. Epyc CPUs challenge Intel’s Xeon CPUs, while Instinct GPUs price lower than Nvidia’s Hopper series.
Nvidia has strengthened its position by creating a proprietary platform called CUDA, attracting many AI developers. In contrast, AMD’s GPUs can only run CUDA with additional tools, further limiting their desirability among large AI and cloud customers. As a result, top-tier AI firms like OpenAI, Microsoft, Amazon, Meta Platforms, and Alphabet‘s Google predominantly rely on Nvidia’s GPUs for their generative AI functions.
Analyzing Growth Trajectories
During fiscal 2023, Nvidia’s revenue faced stagnation as it adjusted to a post-pandemic market and economic challenges. However, fiscal 2024 saw a remarkable turnaround, with a 126% revenue growth fueled by the surge in generative AI applications.
From 2024 to 2027, analysts project Nvidia’s revenue and earnings per share (EPS) to grow at compound annual growth rates (CAGR) of 57% and 65%, respectively, despite potential hurdles like tighter export restrictions to China and rising competition.
Nvidia anticipates that this growth will continue to be driven by the expanding AI market and the launch of its new Blackwell GPUs, which promise to be 2.5 times faster than their Hopper predecessors.
Conversely, AMD’s revenue experienced a downturn of 4% in 2023 due to cooling markets for PCs and gaming systems. However, a 14% increase in 2024 highlighted a recovery, with substantial growth in Epyc CPUs and Instinct GPUs for data centers. Notably, AMD’s data center revenue surged 94%, comprising 49% of its overall revenue.
Despite this growth, concerns arose as AMD’s data center expansion slowed in the fourth quarter, raising questions about its competitiveness against Nvidia in the AI-driven GPU arena. From 2024 to 2027, forecasted growth for AMD stands at a CAGR of 20% for revenue and 73% for EPS, given an anticipated rebound in the PC market and challenges for Intel.
Evaluating Stock Values
Nvidia’s stock currently trades at 33 times its projected earnings for fiscal 2026, while AMD trades at 45 times its estimated earnings for 2025. This suggests that Nvidia offers better value relative to its growth potential, despite a strong historical performance compared to AMD over the last five years.
Nvidia’s operations are less diversified than AMD’s; however, it generates the bulk of its revenue from the faster-growing data center GPU market. AMD’s data center segment continues to grow, but cyclical slowdowns in the PC and console markets remain a challenge. Thus, Nvidia appears to be the more compelling investment choice at this moment, even if its growth eventually wanes should the AI market cool.
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John Mackey, former CEO of Whole Foods Market, is a board member of The Motley Fool, alongside Randi Zuckerberg and Suzanne Frey. Leo Sun holds positions in Amazon and Meta Platforms. The Motley Fool holds positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Intel, Meta Platforms, Microsoft, and Nvidia.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
