It's a hotly debated topic if Nvidia (NVDA +1.16%) or AMD (AMD +0.27%) is the better artificial intelligence (AI) stock. These two are critical suppliers when it comes to AI, as their graphics processing units (GPUs) are utilized in data centers to process these intense models. While Nvidia has been dominant in the early innings of the AI arms race, nothing is saying AMD can't emerge on top as the market matures.
So, which of these two AI juggernauts is the better investment? Let's find out.
Nvidia's data center GPUs have been far more successful than AMD's
GPUs are vital to processing AI models because they can perform calculations in parallel. This allows them to train AI models much quicker than a traditional CPU (central processing unit). The effect is amplified when hundreds or thousands of GPUs are connected in a data center, and more parallel processing paths are created.
Both Nvidia and AMD make these GPUs for data centers, although Nvidia's products have overwhelmingly become the top choice. In Q1 of FY 2025 (ending April 28), Nvidia's data center division generated $22.6 billion in revenue, up 427% from one year ago. Compared to AMD's Q1 (ending March 31) $2.34 billion in data center revenue (up 80% from the previous year), Nvidia is far superior.
NASDAQ: NVDA
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However, that's part of the reason investors are bullish on AMD. For Nvidia, business could not be going much better, which sets a high bar for execution. For AMD, business is good, but could increase with the right product launches.
Another factor to consider is that AMD's product line is much wider than Nvidia's. While Nvidia is focused on GPUs and other ancillary data center products, AMD also produces CPUs for PCs, GPUs for gaming systems (like the PS5), and embedded microprocessors. Nvidia similarly has GPUs for other purposes such as gaming and automobiles, but it's laser-focused on GPUs and their ecosystems, while AMD is much broader.
At last count, AMD and Nvidia had roughly the same-sized workforce, with Nvidia employing 29,600 workers and AMD having 26,000. This is critical to understand, as it's unlikely AMD will ever be able to close the technology gap. With a smaller workforce that is less focused on one product, it's nearly impossible to catch up to a competitor.
However, AMD has survived on this model for a long time.
AMD is used to playing second fiddle
When Intel was a dominant force in the CPU market, it was often said that Intel only allowed AMD to survive so that it wouldn't be sued by the Federal Trade Commission (FTC) for being a monopoly. This sentiment also seems a fitting assessment today, as Nvidia is dominating the data center GPU space.
However, AMD is also starting to earn business from cloud giants (like Microsoft Azure) as an alternative pick. AMD and Microsoft recently announced that AMD's products would be available to customers to help train AI models, in addition to Nvidia's products.
NASDAQ: AMD
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This is a key development, as Microsoft is sending a warning to Nvidia that it can also use a competitor's products and succeed. Two other cloud computing providers, Amazon Web Services (AWS) and Alphabet's Google Cloud, are also starting to make their own chips for AI training, which could further eat into Nvidia's business.
That wraps up the bull case for AMD; it's just an alternative. Essentially, it has nothing to lose and everything to gain, while Nvidia is the exact opposite. However, investing this way hasn't worked out historically. Whether you're comparing Walmart to Kmart or Sears, or even McDonald's to Burger King, the industry leader has proven the more successful investment time and time again.
Although Nvidia is the world's best, it's still a top supplier to all cloud computing providers despite these customers exploring alternatives. Customers are familiar with Nvidia's ecosystem, and it's an excellent product.
To me, Nvidia is still a much better buy than AMD, as investing in the industry leader is a timeless investment strategy that has paid off for years.
