Investors are excited about the explosive potential of artificial intelligence (AI). It seems every day groundbreaking AI tools are created that captivate users and generate untold riches for the innovators behind them.

Yet it's the businesses that supply the technology upon which AI is built that could profit most of all. Advanced Micro Devices (AMD -0.21%) is one of these "picks and shovels" providers. The chipmaker intends to supply the vital processors that power the massive cloud computers that make AI possible.

For this and other reasons, AMD's stock is an attractive buy today. Let's dig in to better understand why.

1. AMD is set to challenge Nvidia in AI

With its stock price up over 180% so far in 2023, Nvidia has clearly captured investors' attention. It's easy to see why. The semiconductor giant currently controls as much as 95% of the chips used for machine learning, according to New Street Research. 

Yet AMD isn't going to just cede this rapidly expanding market to its rival. CEO Lisa Su believes artificial intelligence is AMD's "largest and most strategic long-term growth opportunity." Su is working to integrate the cutting-edge technology across the company's product lines. And she has her sights set on wrestling away market share from Nvidia. 

AMD recently unveiled the MI300X, a high-performance graphics processing unit (GPU) designed to accelerate AI workloads. Providers of the most advanced AI applications, such as ChatGPT-creator OpenAI, rely on GPUs to train and run their AI models. "GPUs are enabling generative AI," Su said at an investor event earlier this month. 

AMD is also developing software that combines with its chips to further optimize AI workloads. Nvidia's software expertise is a key part of its competitive edge. If AMD's new software can compare favorably -- and early indications suggest that it will -- the chipmaker could quickly become a formidable challenger to Nvidia in the AI arena.

2. A big customer win could reshape the AI playing field 

Many of Nvidia's customers are rooting for AMD to succeed. Competition tends to lead to lower prices for consumers. The major cloud providers, which are all big buyers of GPUs, would love to see chip prices decline or at least for price increases to moderate.

AMD has yet to announce a major customer win among the leading cloud platforms, but it could be only a matter of time before it does. Amazon is reportedly testing AMD's new chips for its cloud division. Amazon Web Services (AWS) is the largest of all the cloud-computing networks, so a deal with the cloud titan could be a game changer for AMD.

To win more business, AMD is taking a different approach than Nvidia. AMD is offering potential cloud customers a smorgasbord of sorts from which they can choose among an assortment of AMD's AI hardware and software offerings to pair with their own custom-designed chips and parts provided by other suppliers. Nvidia does give buyers similar options, but it has been pushing its DGX Cloud, a comprehensive AI system that relies nearly entirely on Nvidia's infrastructure and software solutions. 

AMD's strategy could resonate well with Amazon and other cloud-service providers that like to design their own servers. "We're betting that a lot of people are going to want choice, and they're going to want the ability to customize what they need in their data center," Su said during an interview with Reuters. 

A deal with Amazon could allow AMD to quickly capture a sizable chunk of a data center AI accelerator market that's forecasted to increase fivefold to more than $150 billion by 2027, according to Su. 

3. AMD offers more ways for investors to profit

AMD, of course, is far more than just an AI story. Its chips power the leading video-game consoles, including Sony's PlayStation 5 and Microsoft's Xbox Series X|S. AMD thus stands to benefit as the global games market expands to over $200 billion in annual sales by 2025, as estimated by Newzoo. 

Better still, AMD's nearly $50 billion acquisition of Xilinx in February 2022 made it a leader in the fast-growing adaptive computing market. The deal helped AMD's embedded segment produce $1.6 billion of revenue and $798 million of operating income in the first quarter alone, both of which were up nearly threefold from the prior-year period.