Nvidia (NVDA +3.75%) and AMD (AMD +3.29%) are two of the biggest providers of artificial intelligence (AI) computing hardware, but Nvidia is much larger and more successful than AMD in this regard. However, after the latest market sell-off, each is still well off its all-time highs, with AMD down around 60% and Nvidia down 30%.
That's a large difference in how far each stock is down from its all-time high, and it begs the question: Is AMD cheap enough to be a better stock pick than Nvidia?
Nvidia has dominated the data center GPU market
The graphics processing unit (GPU) is the most critical component in training AI models. Nvidia's CEO and co-founder, Jensen Huang, invented the GPU in 1999, and AMD also makes GPUs. These devices have a unique trait: They can process multiple calculations in parallel. This makes them ideal for workloads that need intense computing power, like AI. Furthermore, users can compound this parallel computing effect by connecting multiple GPUs together in clusters, which can include more than 100,000 GPUs right now.
That's a ton of computing power, and Nvidia has capitalized on the massive AI computing market. Since the start of 2023, Nvidia's revenue has dramatically increased overall.
NVDA Revenue (TTM) data by YCharts.
Data center revenue (which encompasses the GPUs used for AI computing) makes up a huge chunk of Nvidia's $131 billion total, contributing $115 billion to that total over the past 12 months.
AMD has also captured part of the data center growth, as its data center division saw revenue increase 94% over the past year. That's excellent growth, but it pales in comparison to what Nvidia posted.
In 2024, AMD's data center revenue was $12.6 billion, which is around a tenth of what Nvidia produced. Additionally, in the latest quarter, AMD saw 69% data center growth, while Nvidia's data center segment rose 93%.So, just because AMD's data center segment is smaller doesn't mean that it's growing faster.
With Nvidia, you get a one-two punch of larger scale and faster growth, which is a combination that's hard for AMD to compete against.
Furthermore, while Nvidia is focused solely on GPUs and the products to support them, AMD has other offerings that haven't performed as well as its data center division. That has hurt AMD's overall growth rate.
AMD Revenue (TTM) data by YCharts.
So, while Nvidia's revenue has risen nearly 400% since the start of 2023, AMD's hasn't even cracked double-digit growth despite strong performance from the data center market.
This is a huge problem, and it explains why AMD's stock performed so poorly over the past year. But could it be primed for a rebound in 2025?
Both stocks look pretty cheap right now
Because each company is still putting up rapid growth in its data center divisions and AMD had a one-time event that caused its earnings per share (EPS) to spike during one quarter, using the trailing price-to-earnings (P/E) ratio to value these stocks isn't a great idea. Instead, I'll use the forward P/E ratio to compare these two. This method has its flaws because it uses analysts' projections rather than actual results, but it's one of the best tools investors have to understand where each stock is going.
From this perspective, AMD's stock is cheaper, but not by much.
AMD PE Ratio (Forward) data by YCharts.
With Nvidia trading for 23 times forward earnings and AMD trading at 19, it isn't much cheaper. For how much AMD has underperformed and given its far smaller market share, you'd think it would trade at an even deeper discount, but it doesn't.
As a result, I think Nvidia is the far better buy here, because it's a much stronger company with a significant foothold in one of the greatest computing markets to ever emerge. Furthermore, with Nvidia's current price tag not far off from the broader market's 19.8 times forward earnings (as measured by the S&P 500 (^GSPC +1.18%)), it looks like a great stock to buy right now.
