NVIDIA (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD) have been rivals in the graphics processor space for quite some time. Right now, NVIDIA holds more than 70% of discrete desktop GPU market share and AMD takes the rest. And while desktop graphics processor units sales are an important business for both companies, there's reason to believe that the next stage of their rivalry will be fighting over which has the better artificial intelligence processors.

The AI market will be worth an estimated $59.8 billion by 2025 -- up from just $1.4 billion last year --  and NVIDIA and AMD are hoping that their GPUs will be a driving force in this growing market. So let's take a look what this means and which stock has more potential in the space.

Rendering of human brain on top of a computer chip background.

Image source: Getty Images.

The case for NVIDIA

NVIDIA believes that its total addressable market for AI is about $40 billion between now and 2025 and is already making some big moves into the AI space with its driverless cars technology and data center processors. 

The latter is the company's largest AI opportunity and NVIDIA believes that using its processors for deep learning (where computers learn a new capability using existing data) could tap into a total addressable market of about $11 billion by 2020. 

NVIDIA has done a great job of getting its foot in the door for this, and already works with Facebook, Alphabet's Google, and others to provide GPUs for some their powerful AI servers.

One of the other key areas of AI growth for the company is from its self-driving car supercomputer, called Drive PX 2. This system uses computer vision technology to allow cars to process images that help them be aware of their surroundings. The company recently announced that Tesla, Audi, Volvo, and Toyota are all using some of the company's technology in their future semi-autonomous vehicles. NVIDIA believes that its total addressable market for self-driving cars is about $8 billion. 

It's worth mentioning that NVIDIA doesn't make much money from its AI pursuits right now. The company brought in just 21% of its total revenue from its data center segment in fiscal first-quarter 2018 and 7% from its automotive business. But NVIDIA's current moves in AI server and the semi-autonomous driving space should help it to continually build up its AI-related GPU sales and expand its revenues as the AI market grows.

The company currently trades at a hefty premium of about 47 times forward earnings, but investors should keep in mind that NVIDIA's AI opportunity has yet to be realized, which means there's likely more room for it to grow. 

The case for AMD

There's no getting around the fact that AMD is far behind NVIDIA's AI position. But this former is making some significant moves to remedy that. This year, its server GPUs earned a spot on Google's Cloud Platform, including its Cloud Machine Learning services. Google still uses NVIDIA for these services as well, but the new partnership has helped show that AMD is building hardware that's capable of some AI tasks.  

Additionally, the company has expanded its open-source software offering by creating the Radeon Open Compute project (ROCm). The software is meant to compete with NVIDIA's CUDA coding language that's currently used for much of the AI systems on the market. AMD's open-source software allows users to tap into AMD's hardware while also being capable of using NVIDIA processors as well. 

Another major step for AMD was the debut of its Radeon Vega Frontier Edition processor at the end of June. The company says the new processor is the "world's fastest graphics card for machine learning development" and says that it has up to 172% faster rendering than one of NVIDIA's leading GPUs. While benchmark comparisons aren't always an accurate measurement of real-life performance AMD's GPU is yet another solid step toward AI for the company. 

Unfortunately for AMD, all of these steps have come in the shadow of NVIDIA's huge AI plans and the company's revenue from AI is basically nonexistent at this point. But investors have pushed the company's share price more than 140% over the past 12 months and many are betting that its latest GPUs will put the company on a stronger footing against NVIDIA.

The verdict

While investors are certainly optimistic about AMD, there's little proof that the company can overtake NVIDIA in the AI space. NVIDIA is already a self-driving car tech leader, is the go-to GPU maker for many AI servers, and has a clear understanding of its market potential in the AI space.

I think AMD will have a place in the AI market over the coming years, and could eventually take some significant market share with its processors, but investors shouldn't expect the company to even come close to NVIDIA's position. AMD is starting too late and hasn't focused its attention enough on AI to take on NVIDIA's growing dominance.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.