Nvidia (NVDA -1.29%) and Advanced Micro Devices (AMD -2.28%) are similar companies. While AMD's consumer business is larger and it has a wider product lineup, these two compete head-to-head in arguably the most important technological battle in the world: GPUs for artificial intelligence computing. While Nvidia stormed out to an early lead at the start of the AI boom in 2023, AMD has clawed its way back and is offering viable products that could serve as an alternative to Nvidia's product lineup.
If you ask the market, AMD is clearly winning the battle and stealing market share, which is why its stock has nearly tripled in 2026, compared with Nvidia's 23% gain. But this mismatch in stock performance has caused the two stocks' valuations to uncouple.
This could be a huge warning flag for one (or both) of the stocks, and investors must understand what's going on and take proper action.
Image source: The Motley Fool.
AMD's valuation has gotten out of control
Over the past few years, Nvidia and AMD's valuations have been fairly in line with each other, outside of the last six months.
AMD PE Ratio (Forward) data by YCharts
Since the end of spring, AMD's stock has been on an absolute tear, reaching heights never seen before. It now has a market cap of about $1 trillion, but does it actually deserve it? The question of what a fair price is for AMD's stock is tricky. AMD is doing its best since the AI boom kicked off in 2023.
AMD Revenue (Quarterly YoY Growth) data by YCharts
Its profit margins are at recent highs, and its growth rate is reaching new levels. That has caused the market to reprice AMD's stock, as it deserved, but the level it has reached seems a bit extreme. Although AMD is doing the best it's ever done, it's still nowhere near where Nvidia is now. And that's the major problem with AMD's stock.
AMD isn't priced correctly
During Nvidia's last quarter, it grew revenue at a 106% pace and reached a projected margin of 62%. That makes it a far stronger company than AMD, and from that information alone, there's no reason to bet on AMD over Nvidia.
NASDAQ: AMD
Key Data Points
Next year, AMD is expected to close the gap, but not by a huge margin. The average Wall Street analyst expects Nvidia revenue to grow at a 68% pace to $692 billion next year. AMD's revenue growth is expected to be about 75%, reaching $89 billion. So, AMD is expected to overtake Nvidia's growth rate, but with the two only a few percentage points apart, that's really not much of a separation.
As a result, AMD and Nvidia will likely be on par in terms of business performance next year.
If two stocks are comparable in business performance and operate in the same industry, I'd argue they should be priced the same. However, that's not the case. Investors must decide whether to stick with AMD's stock and potentially realize gains or switch to Nvidia's stock, which is undervalued. If next year's earnings projections are used, Nvidia's stock looks like a bargain deal, while AMD's looks expensive.
AMD PE Ratio (Forward 1y) data by YCharts
Even if AMD's 2027 earnings projections are used, it's still more expensive than Nvidia's stock is right now. That means there are about two years' worth of growth priced into the stock, but none is priced in for Nvidia. That makes Nvidia the far safer bet here, and if you have AMD shares, I think the smart move is to take the phenomenal gains the market has given you and swap them for Nvidia before it can continue its incredible rise.
