Artificial intelligence (AI) has dramatically altered the value propositions of both Nvidia (NVDA -2.09%) and Advanced Micro Devices (AMD 0.10%).
Nvidia's AI accelerators have redefined the company and the overall semiconductor industry as customers scramble to capitalize on the power of AI. In contrast, AMD has become known for catching up to its competitors technically, and it is again attempting to do so in the AI accelerator market.
The future could potentially bode well for both companies. Grand View Research forecasts a compound annual growth rate (CAGR) for the global AI chip industry of 29% through 2030. Such growth rates mean a rising tide should lift all major industry players.
Nonetheless, the prospects for investors are less clear since both stocks have benefited from considerable AI-driven growth. Still, given where both stocks currently stand, one is likely to fare better for the foreseeable future.
The Nvidia AI revolution
Nvidia stock has surged since investors discovered that Nvidia's AI accelerators powered ChatGPT's AI platform. This discovery ignited unprecedented demand for its accelerators, so much so that Nvidia could not produce enough of these chips. Consequently, the data center segment that designs these chips has become Nvidia's dominant focus.
To stay ahead of competitors, Nvidia continues to innovate and has just begun releasing its latest Blackwell accelerators. They are rumored to cost between $30,000 and $40,000 per unit, with the Blackwell superchip rising to as much as $70,000, according to numerous sources. Despite such prices, Nvidia claims between 70% and 95% of the AI accelerator market, according to Mizuho Securities' estimates.
Thus, it will likely not surprise investors that Nvidia reported $91 billion in revenue in the first three quarters of fiscal 2025 (ended Oct. 27), a 135% yearly increase. Nvidia's data center segment, which was not even Nvidia's largest revenue source three years ago, accounted for $80 billion, or 87% of overall revenue.
The growth has boosted net income even more profoundly, as the $51 billion profit for the first nine months of fiscal 2025 rose 190%.
Unfortunately for investors, Nvidia's stock likely prices in this growth -- and then some. That is not because of the P/E ratio, which is 55. However, even with the growth, investors may hesitate amid Nvidia's price-to-sales (P/S) ratio of 31.
That is a high level even for a fast-growing stock, particularly with revenue growth in fiscal 2026 expected to slow to 51%. Investors tend to punish stocks whose revenue growth slows, a factor that could bode poorly for Nvidia's stock.
How AMD stands out in AI
Indeed, Nvidia's struggles could motivate investors to look at its emerging competitor, AMD. AMD began selling its MI300 series of accelerators in response to Nvidia's dominance of that market. Also, amid the need to innovate, it released the MI325X accelerators in October to compete with Nvidia's Blackwell line.
It is unclear how much business AMD can draw away from Nvidia. Nonetheless, its price, widely reported to be just under $15,000, is far below the cost of Blackwell. Given the aforementioned CAGR for AI accelerators and Nvidia's struggles to meet demand, AMD may have a competitive niche despite failing to match Nvidia.
However, AMD also lags behind Nvidia in terms of financial performance. In the first nine months of 2024, its $18 billion in revenue grew by only 10% compared to the same period in 2023.
Moreover, the data center segment is only 48% of revenue. Even though that segment increased its revenue by 107% over the previous year, it continues to lag behind Nvidia. Still, it may also point to more growth potential, assuming data center revenue also becomes the dominant revenue source for AMD.
AMD is also much less profitable, though its $1.2 billion net income for the first three quarters of 2024 rose more than sixfold annually. Amid that profit recovery, its 128 P/E ratio likely does not represent its valuation well.
Nonetheless, the 9.6 P/S ratio makes it a relative bargain compared to Nvidia, and with revenue growth for 2025 forecast to reach 27%, overall growth is set to accelerate.
Nvidia or AMD?
AMD stock looks like the better buy under current conditions. Admittedly, Nvidia holds a dominant share of the market, and even if both revenue forecasts hold, Nvidia's estimated 51% revenue growth is significantly faster than the 27% forecast for AMD.
However, stocks tend to respond poorly to slowing revenue growth. Even though 51% revenue growth is impressive, it is enough of a slowdown for investors to question Nvidia's 31 P/S ratio.
In contrast, AMD's revenue growth should ramp as AI accelerators claim a larger share of AMD's revenue base. With revenue growth rates advancing and the P/S ratio under 10, it is likely the better buy under current conditions.
