Spending on artificial intelligence (AI) infrastructure is surging. Five companies have committed to spending $700 billion on AI infrastructure this year by themselves, while famed portfolio manager Cathie Wood has projected that data center capital expenditures (capex) will climb to $1.4 trillion in 2030.
That means a lot of money is going to be spent on chips in the coming years. The question, though, is which chip stock looks like the better one to own: Nvidia (NVDA 1.53%) or Advanced Micro Devices (AMD 3.46%).
Image source: Getty Images.
Nvidia: The market leader
In graphics processing units (GPUs), Nvidia is the clear market leader, and frankly, right now, it is not even close. It currently holds around a 90% market share, with AMD a very distant second.
Nvidia's dominance in the GPU space comes largely from its CUDA software platform. Nvidia created a software platform to program GPUs for tasks beyond their original intent, which was to speed up graphics rendering in video games, much sooner than AMD. It then gave CUDA away for free and seeded it into universities and research labs that were doing early work on AI. This led to most foundational AI code being written on its software, which is why it is the dominant player today, especially in training AI models.
NASDAQ: NVDA
Key Data Points
As a result, Nvidia looks poised to remain the GPU leader for the foreseeable future.
AMD: An inference upstart
For AMD to be the better AI stock, it doesn't need to overtake Nvidia in the GPU market. That is just not going to happen. However, taking just a little share in a rapidly growing market could go a long way. With Nvidia's moat not as wide in the AI inference market, AMD has an opportunity to chip away at it in this segment. Meanwhile, the inference market is eventually expected to become much larger than training.
AMD has also struck a multi-year deal with OpenAI to supply the company with 6 gigawatts of GPUs, in a deal that could be worth around $200 billion. OpenAI plans to use the chips specifically for inference, and it will take its first gigawatt worth of chips later this year. The maker of ChatGPT is also set to receive a 10% stake in AMD based on the delivery of these chips, so it has an incentive for AMD to do well.
NASDAQ: AMD
Key Data Points
At the same time, AMD is also the leader in the data center central processing unit (CPU) space, and the ability to combine its GPUs and CPUs could become an advantage at some point.
The verdict
I think both stocks are set to greatly benefit from the spending being poured into AI infrastructure in the coming years. However, of the two stocks, I'd go with AMD, as it has greater growth potential given its much smaller AI revenue base. It looks poised to remain the leader in CPUs, while just some small gains in the GPU market could lead to surging revenue.
