If there's one company that exemplifies the opportunity represented by the accelerating adoption of artificial intelligence (AI), Nvidia (NVDA 0.87%) is arguably that company.
Its graphics processing units (GPUs) were already the gold standard for processing earlier versions of AI before generative AI burst on the scene early last year. These advancements required much greater computing horsepower than their predecessors, and Nvidia was there to answer the call, quickly becoming the go-to for running cutting-edge AI performance.
The result has been a parabolic stock price move that's been nothing short of breathtaking. Nvidia soared 147% over the past year, notching gains of 478% over the past three years (as of this writing). One Wall Street analyst believes Nvidia has much further to rise, predicting the stock could generate additional gains of 259% by 2030. However, this same analyst believes that rival Advanced Micro Devices (AMD +2.96%) could soar even higher.
Image source: Getty Images.
The historic backdrop
Beth Kindig, lead tech analyst and CEO of I/O Fund, has an impressive track record for her coverage of Nvidia. As far back as 2018, she argued that Nvidia had an "impenetrable moat" driven by the "performance and efficiency" of its cloud GPUs, which would give the company an insurmountable lead in the "next wave of AI applications." Kindig went on to suggest that the adoption of Nvidia's platform by developers was key to the company's future success.
Fast-forward several years, and Kindig's predictions have proven to be startlingly accurate. Furthermore, Nvidia's consistent focus on research and development (R&D) has the company light-years ahead of the competition in terms of performance, which Kindig also predicted.
NASDAQ: NVDA
Key Data Points
Given her track record, when Kindig talks Nvidia, Wall Street listens. Just last month, Nvidia briefly became the world's most valuable company, sending its market cap to $3.3 trillion, surpassing Microsoft and Apple, though it has since pulled back. Kindig believes Nvidia stock has much further to run, predicting its market cap will reach $10 trillion by 2030, representing additional gains of 259% compared to Thursday's closing price. Perhaps more head-turning, however, is her view that Advanced Micro Devices (AMD) could generate even more impressive gains during the same period.
A changing of the guard
Thus far, the broad adoption of AI has been focused on training AI systems like ChatGPT. However, this is merely the first step, as these models must then be deployed to complete the tasks they were trained for, a process known as inference.
Kindig argues that as the focus shifts from training to inference, the opportunity -- and the competition -- will increase. Nvidia currently controls an estimated 98% of the AI training market, leaving little but crumbs for its rivals. However, much of AI processing is expected to eventually move from the cloud to the devices themselves, opening the door for greater competition.
Much of Nvidia's current success is thanks to its Compute Unified Device Architecture (CUDA), the proprietary software platform used by developers to maximize the performance of Nvidia's GPUs. The inference market will arguably be less reliant on CUDA, which will give AMD its opportunity to shine.
While AMD has long been a step behind Nvidia, its processors are comparable in many ways. AMD's biggest advantage is in terms of pricing, as the company charges considerably less for processors with similar specifications. As AI adoption accelerates, this could provide AMD with a way to "chip" away at Nvidia's dominance.
Reports suggest Nvidia's H100 AI processors top out at $40,000, more than double the price of AMD's MI300X. Savings of $20,000 a pop could add up quickly, giving big AI spenders an opportunity to save some money. Therein lies AMD's opportunity.
NASDAQ: AMD
Key Data Points
Accelerating growth at a discount
No one knows for sure how big the AI opportunity will ultimately be, but estimates regarding generative AI adoption continue to climb. Conservative estimates suggest the market could grow to between $2.6 trillion and $4.4 trillion annually, according to global management consulting firm McKinsey & Company.
Given the magnitude of the opportunity, there's certainly room for more than one winner in AI, and even small market share gains could represent big profits for AMD investors. Furthermore, the stock currently trades for less than 7 times next year's estimated sales, while Nvidia's price-to-sales (P/S) ratio is more than 17, making AMD far more attractively priced.
Kindig's track record with Nvidia stock has certainly earned her the benefit of the doubt. So, for investors looking for another way to profit from the AI revolution, AMD stock represents an excellent opportunity at a more attractive price.
