The artificial intelligence (AI) market has captured Wall Street's attention this year, with countless companies experiencing significant stock bumps. The chart illustrates the considerable stock growth that some of the biggest names in AI have seen in the first six months of 2023.
Data by YCharts
With the market quickly developing, adding one of these stocks to your portfolio is not a bad idea. Advanced Micro Devices (AMD +5.33%) and Amazon (AMZN +0.20%) are attractive options, with one excelling in the hardware side of AI, and the other making inroads in software.
However, before adding these stocks to your portfolio, it's wise to make the most of your investment by knowing which is the better buy. So, let's look at whether AMD or Amazon is the better way to profit from the swiftly expanding AI industry.
Advanced Micro Devices: Taking on Nvidia
Advanced Micro Devices was overshadowed by its biggest competitor, Nvidia, earlier this year. Nvidia gained investors' support with its position as the primary supplier of graphics processing units (GPUs) to OpenAI's ChatGPT. However, AMD has since made AI its primary focus, which could see it eventually surpass or at least equal the competition.
AMD's biggest claim in AI is its diverse range of chips. In addition to GPUs, the company produces some of the most powerful central processing units (CPUs) and data processing units (DPUs). As a result, AMD's hardware has caught the eye of some of tech's most prominent players, with its chips powering cloud platforms, including Microsoft Azure and Alphabet's Google Cloud.
NASDAQ: AMD
Key Data Points
The chipmaker's partnership with Microsoft has proved particularly fruitful, resulting in a team-up to create an alternative to Nvidia. News broke in early May that the Windows company is supporting AMD's AI chip expansion by providing financial and engineering resources. Considering Microsoft is the biggest investor in OpenAI and holds exclusive licenses to some of its AI models, AMD could receive invaluable guidance as its technology develops.
Moreover, AMD debuted its most-advanced GPU earlier this month, the MI300X, developed to compete directly with Nvidia's hardware. The new chip has reportedly caught the eye of the world's biggest cloud platform, Amazon Web Service (AWS), which is testing it for potential use.
Amazon: Expanding AWS' AI Services
Amazon has concerned investors recently, with AWS reporting slowing growth over the last year. Meanwhile, Microsoft's collaboration with OpenAI indicates Amazon has fallen behind in AI cloud services. However, the AI market is projected to expand at a compound annual growth rate of 37% through 2030, suggesting the sector is still in its infancy, and there will be plenty of market share up for grabs if Amazon is quick to react.
The e-commerce giant has so far made moves by expanding AWS' generative AI services. In April, the company announced a foundation model called Amazon Bedrock that it developed from machine learning and various data points. The model is capable of advanced generative tasks like producing an entire ad campaign based on a company's product description.
NASDAQ: AMZN
Key Data Points
Alongside Amazon Bedrock, the company launched CodeWhisperer. Just like ChatGPT provides users with answers based on prompts, developers can simply tell CodeWhisperer what kind of code they need, and the service will produce it.
Amazon's biggest advantage in AI is, no doubt, AWS leading the cloud market. If the company continues adding attractive AI services to the platform, it could retain its cloud dominance and keep Microsoft in its rearview mirror.
Is AMD or Amazon the better buy?
AMD and Amazon are both attractive options to back the booming AI industry. So the question is, which is the better value?
The chart below shows AMD's forward price-to-earnings ratio (P/E) is less than half of Amazon's.
Data by YCharts
The average P/E is between 20 and 25, with anything below considered a good value. As a result, neither stock is exactly a bargain. However, AMD's lower forward P/E indicates it is a far better value.
In terms of AI, investing in the hardware side of the industry currently feels like the more reliable option. There's far less competition in chips than in cloud services, with the main hardware firms being Nvidia, AMD, and Intel. Meanwhile, Amazon has to contend with a growing number of cloud platforms, such as Azure, Alphabet's Google Cloud, and Oracle, to name a few.
AMD's ability to supply chips to any of these services gives it massive potential as the industry develops, making it the better AI stock to buy right now.
