The chip market has exploded over the last year as a boom in artificial intelligence (AI) led to a spike in demand for more powerful hardware. Increased interest in AI services has meant an increased need for graphics processing units (GPUs), the chips necessary to train and run AI models.
As a result, the companies at the forefront of this technology, Nvidia (NVDA +1.67%) and Advanced Micro Devices (AMD 0.03%), have enjoyed stock gains of 222% and 84%, respectively, since last April. These companies have exciting outlooks in AI over the long term thanks to their successful chip businesses, and they could profit from the market's tailwinds for years.
The AI market hit close to $200 billion last year and is projected to have a compound annual growth rate of 37% through 2030. That trajectory would see the sector reach nearly $2 trillion by the decade's end.
So, despite their meteoric rises this year, the shares of Nvidia and AMD likely still have much to offer new investors over the long term. Let's look closer at these chipmakers and determine whether Nvidia or AMD is the better AI stock this April.
Nvidia
It's been hard to avoid coverage of Nvidia over the last year, as it became the poster child for the boom in AI. In 2023, the company cornered the market on AI chips, achieving an estimated 90% market share in GPUs, which sent its earnings skyrocketing.
In its fourth quarter of 2024 (which ended in January), the company's revenue increased by 265% year over year to $22 billion. Operating income jumped 983% to nearly $14 billion. The impressive growth was primarily thanks to a 409% increase in data center revenue, reflecting a spike from AI.
NASDAQ: NVDA
Key Data Points
The company's free cash flow increased by 430% in the last year to more than $27 billion, indicating it has the funds to continue investing in AI and retain its market supremacy.
As a leading chipmaker, Nvidia has a powerful position. Besides its AI hardware, the company's chips have a wide range of applications, including cloud platforms, video game consoles, laptops, custom-built PCs, and more.
Consequently, the company is one of the best options for investing in tech, and even more so for those looking to profit from the future of AI.
Advanced Micro Devices
AMD was slightly late to the AI party, and Nvidia beat it to the market. But AMD is investing heavily in the industry and has formed some lucrative partnerships that could take it far in the coming years.
Last December, AMD unveiled its MI300X GPU for AI. The chip was designed to compete directly with Nvidia and has already led to some of tech's most prominent players, like Microsoft and Meta Platforms, to sign on as clients.
NASDAQ: AMD
Key Data Points
AMD is diversifying by expanding into AI-powered personal computers (PCs). According to research firm IDC, shipments of PCs are projected to receive a major boost this year, with AI integration serving as a key catalyst. And a Canalys report predicts that 60% of all PCs shipped in 2027 will be AI-enabled.
AMD's earnings have yet to reflect its heavy investment in AI, but the company's recent quarterly report suggests it's moving in the right direction. In its fourth quarter of 2023, revenue rose 10% year over year to $6 billion, beating analysts' expectations by about $60 million. The company's AI-focused data center segment posted 38% revenue growth.
Is Nvidia or AMD the better AI stock?
Nvidia and AMD are ready to profit from AI growth for decades. Both stocks would likely strengthen any portfolio over the long term. But earnings-per-share (EPS) estimates indicate AMD might have more room to run over the next two years.
Data by YCharts.
These charts show Nvidia's EPS could reach $36 by fiscal 2026, while AMD's might hit just over $7. On the surface, it looks like Nvidia is the clear winner. But multiplying these figures by the companies' forward price-to-earnings ratios (Nvidia's is 35 and AMD's is 47) yields stock prices of $1,260 for Nvidia and $329 for AMD.
Using their recent prices, these projections would see Nvidia's stock rise 44% over the next two fiscal years and AMD's increase by 93%. The significant difference highlights the fact that AMD is at an earlier stage in its AI journey and could have more room for growth in the short term. As a result, AMD is a screaming buy over Nvidia right now.
