artificial intelligence (AI) has dramatically changed the value propositions of both nvidia (NASDAQ: NVDA ) And Advanced Micro Devices (NASDAQ: AMD ).
Nvidia’s AI accelerators have redefined the company as a whole Semiconductor industry As customers rush to capitalize on the power of AI. In contrast, AMD is known for catching up to its competitors technologically, and it’s looking to do so again in the AI accelerator market.
Start your morning smart! wake up with Breakfast news to your inbox every market day. Sign up for free »
The future could potentially be good for both companies. Grand View Research forecasts a compound annual growth rate (CAGR) of 29% for the global AI chip industry by 2030. Such growth rates mean that a rising tide should lift all major industry players.
Still, the prospects for investors are less clear as both stocks have benefited from substantial AI-driven growth. Still, where both stocks currently stand, one is likely to fare better for the foreseeable future.
Nvidia stock rose as investors learned that Nvidia’s AI accelerators power ChatGPT’s AI platform. This discovery sparked unprecedented demand for its accelerators, so much so that Nvidia could not produce enough of these chips. Consequently, the data center segment that designs these chips has become a major focus of Nvidia.
To stay ahead of competitors, Nvidia continues to innovate and has just started releasing its latest Blackwell accelerators. According to multiple sources, they are rumored to cost between $30,000 and $40,000 per unit, with Blackwell Superchips going up to $70,000. Despite such prices, Nvidia claims between 70% and 95% of the AI accelerator market, according to Mizuho Securities estimates.
As such, it likely won’t surprise investors that Nvidia reported revenue of $91 billion in the first three quarters of fiscal 2025 (ended Oct. 27), a 135% year-over-year increase. Nvidia’s data center segment, which wasn’t even Nvidia’s biggest revenue source three years ago, accounted for $80 billion, or 87% of overall revenue.
The growth boosted net income even more profoundly, as profits rose 190% to $51 billion for the first nine months of fiscal 2025.
Unfortunately for investors, this increase likely cost Nvidia’s stock — and then some. This is not because of the P/E ratio, which is 55. However, even with the increase, investors may hesitate amid Nvidia’s price-to-sales (P/S) ratio of 31.
That’s a high even for a fast-growing stock, especially with revenue growth expected to slow to 51% in fiscal 2026. Investors tend to punish stocks whose revenue growth slows, a factor that could have negative implications for Nvidia’s stock.
Indeed, Nvidia’s struggles may prompt investors to look at its emerging competitor, AMD. AMD began selling its MI300 series of accelerators in response to Nvidia’s dominance in that market. Also, amid the need for innovation, it released MI325X accelerators in October to compete with Nvidia’s Blackwell line.
It’s unclear how much business AMD can take away from Nvidia. Still, its price, widely reported to be just under $15,000, is far less than Blackwell’s. Given the aforementioned CAGR for AI accelerators and Nvidia’s struggles to meet demand, AMD may have a competitive niche despite failing to match Nvidia.
However, AMD also lags behind Nvidia in terms of financial performance. In the first nine months of 2024, its revenue of $18 billion grew only 10% compared to the same period in 2023.
Moreover, the data center segment accounts for only 48% of revenue. Although that segment grew its revenue by 107% over the previous year, it lags behind Nvidia. Still, it could also point to further growth potential, assuming data center revenue also becomes a major revenue source for AMD.
AMD is also far less profitable, although its $1.2 billion net income for the first three quarters of 2024 is up sixfold annually. Amidst that profit recovery, its 128 P/E ratio likely doesn’t reflect its valuation well.
Still, the 9.6 P/S ratio makes it a relative bargain compared to Nvidia, and with revenue growth forecast to reach 27% for 2025, overall growth is set to accelerate.
AMD stock looks like a better buy under current conditions. Granted, Nvidia holds a dominant share of the market, and even though both revenue forecasts hold, Nvidia’s projected 51% revenue growth is significantly faster than the 27% forecast for AMD.
However, stocks respond poorly to lower revenue growth. While 51% revenue growth is impressive, it’s bearish enough for investors to question Nvidia’s 31 P/S ratio.
Conversely, AMD’s revenue should increase as AI accelerators claim a larger portion of AMD’s revenue base. With revenue growth rates moving forward and a P/S ratio below 10, it is a better buy prospect under current conditions.
Before buying stock in Advanced Micro Devices, consider this:
The Motley Fool Stock Advisors The analysis team has just identified what they believe 10 best stocks For investors to buy now… and Advanced Micro Devices was not one of them. 10 stocks to make the cut can generate amazing returns in the coming years.
Consider when nvidia This list was created on April 15, 2005… If you invested $1,000 at the time of our recommendation, You will have $872,947!*
Stock advisor Provides investors with an easy-to-follow blueprint for success, including portfolio construction guidance, regular updates from analysts, and two new stock picks every month. TheStock advisorThe service is More than quadruple Return of the S&P 500 since 2002*.
Will Healy There are positions in Advanced Micro Devices. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. Motley Fool has a Disclosure Policy.
