Nvidia (NVDA +0.19%) has essentially owned the data center computing market, which is a huge deal, considering the hundreds of billions of dollars being spent on artificial intelligence (AI) infrastructure. Nvidia is one of the primary benefactors of this investment, although some of its competitors, like AMD (AMD 1.24%), are also benefiting.
However, the lead that Nvidia has surmounted looks unassailable, but all it takes is one innovation, and AMD could be neck and neck with Nvidia.
So, which of these two is the better AI stock for 2025?
Nvidia's lead in the data center market may be insurmountable
Nvidia's GPUs and software have become the industry standard in data centers. While AMD's GPUs look like they can compete on paper, Nvidia's software, CUDA, sets it apart. This software allows GPUs to process multiple calculations simultaneously and handle the sheer computing tasks that AI computing requires.
NASDAQ: NVDA
Key Data Points
Because the industry has essentially adopted CUDA software versus AMD's ROCm, it's unlikely that AMD will ever be able to surmount Nvidia's lead in the data center race. The switching costs of moving from one supplier to another when the infrastructure is already set up for one is a massive consideration and is the primary hurdle for anyone switching.
Nvidia's lead over AMD can be seen in both of their financials. Each has a data center division, and Nvidia's lead is quite impressive. In Q4 2024, AMD's data center revenue was $3.9 billion, up 69% year over year. Nvidia hasn't reported its Q4 results yet, as its financial calendar is shifted by one month. As a result, using AMD's Q3 results provides a better comparison.
In Q3, AMD's data center revenue was $3.5 billion, up 122% year over year. These are impressive results by themselves, yet pale in comparison to Nvidia's.
NASDAQ: AMD
Key Data Points
In Q3 FY 2025 (ending Oct. 27), Nvidia's data center revenue was $30.8 billion, up 112% year over year. That indicates Nvidia's data center business is around 10 times the size of AMD's, which is a massive lead. We'll learn more about Nvidia's Q4 results when it reports on Feb. 26, but with all the talk from big tech companies about AI spending, it's likely to report great numbers.
Nvidia has built a massive moat with huge switching costs, which essentially blocks AMD from taking a meaningful amount of its data center business. However, if AMD is substantially cheaper as a stock, the discount could be enough of a reason to invest in AMD, as its data center business is still growing strongly, being much smaller than Nvidia.
AMD doesn't have a discount to Nvidia
Because both companies are fully profitable, using an earnings-based metric like the price-to-earnings (P/E) ratio makes sense.
NVDA PE Ratio data by YCharts
From this perspective, AMD's stock looks far more expensive than Nvidia's, which it is. However, both companies are undergoing strong growth, and AMD's profit picture is set to improve throughout 2025, so using a forward P/E ratio is also a good idea.
NVDA PE Ratio (Forward) data by YCharts
From this perspective, AMD is cheaper than Nvidia. However, the discrepancy between these two valuation levels can largely be attributed to the company-wide growth rate. Considering that Nvidia is expected to grow revenue by 52% in FY 2026 (ending January 2026) and AMD is expected to grow at a 24% pace, this difference seems reasonable.
Nvidia is growing faster and dominating the most important computing market right now. While AMD is still a fine company, I don't think there's any reason to own AMD over Nvidia. Best-in-class stocks usually outperform their peers by a wide margin, especially when they start from a similar valuation point.
