Better Semiconductor Stocks: Nvidia or Advanced Micro Devices

Two leading companies are fighting for dominance in the integrated circuit market: Nvidia(NASDAQ: NVDA) AND Advanced Micro Devices(NASDAQ:AMD). Both companies have performed well over the past five years. AMD has gained more than 433% during that time, which is a great result. But that return pales in comparison to the more than 3,000% gain in Nvidia shares.

Nvidia has been the better stock over the last five years, but which company is more likely to outperform over the next five years?

Nvidia vs AMD

Today, the expansion of artificial intelligence (AI) infrastructure is benefiting both companies, given the demand for graphics processing units (GPUs) needed to power large language model (LLM) training and artificial intelligence (AI) inference. This insatiable demand for GPUs led to Nvidia’s data center segment reporting $22.6 billion in revenue in the first quarter of fiscal 2025 (for the quarter ending April 28, 2024), an astonishing 427% year-over-year increase. Meanwhile, AMD’s data center segment saw revenue in the first quarter of fiscal 2024 grow more than 80% year-over-year to $2.3 billion.

Nvidia has become the clear leader in AI chips, with its data center business generating nearly 10 times more revenue than AMD’s. The company’s GPUs have become mainstream, thanks to its Compute Unified Device Architecture (CUDA) software platform, on which developers have long been trained to program the chips. That has helped create a wide moat for the company’s GPUs, giving it more than 80% market share.

However, the segment continues to grow for AMD as its GPUs become an alternative to Nvidia chips, of which there are few. Companies often like to have multiple suppliers so as not to become dependent on one.

AMD is making some progress. Last month, Microsoft(NASDAQ: MSFT) announced that it will offer clusters of AMD MI300X chips via its Azure cloud computing service as an alternative to Nvidia. Additionally, AMD recently announced that it has serious inquiries to build an AI cluster with over one million GPUs. Considering that AI training clusters are typically built with several thousand GPUs, this would be a huge win for AMD if it ever came to fruition.

While Nvidia’s results are dominated by its GPU products and data center segment, data centers accounted for only 43% of AMD’s total revenues, while they accounted for 87% of Nvidia’s revenues. At the same time, some of AMD’s other segments struggled, leading to overall year-over-year revenue growth in the quarter of just 2%, compared to 262% for Nvidia.

Which stocks are better to buy?

Despite Nvidia’s strong stock performance, both stocks are actually trading at nearly identical projected price-to-earnings (P/E) valuations. Nvidia is trading at a projected P/E of 45.6, while AMD has a P/E of 44.8.

NVDA PE Ratio (Forward) data by YCharts.

Given such similar valuations, the question of which stocks to own going forward should come down to which company will deliver better operating results over the next few years.

AMD has the advantage that its data center business has a much smaller base compared to Nvidia. As a smaller company, it has the potential to take market share from Nvidia. If the company can become a viable second source for GPU chips, it should see significant further growth in that segment.

Meanwhile, looking five years from now, the company’s gaming segment, which has been a big drag, is expected to see massive improvement starting in 2027 or 2028. Microsoft is reportedly planning to release its next-generation gaming console in 2028, while Sony The PlayStation 6 is expected to launch in 2027 or 2028.

In 2022, AMD’s revenue related to the Sony PlayStation 5 (PS5) was nearly $3.8 billion, accounting for 16% of the company’s revenue. Console sales typically peak in the third year after launch, and the PS5 was introduced in 2020.

Nvidia has the moat it has created with its CUDA platform. Developers have already learned from its platform, and working with other GPUs takes time and training, which costs money. That should allow the company to maintain its advantage.

AMD, meanwhile, has been moving quickly to innovate, developing next-generation GPU platforms that are backward compatible with existing architectures, which should help fuel massive demand from customers looking to stay up to date with cutting-edge AI capabilities.

If AI is still in its early stages and data center expansion is just beginning, then Nvidia is my favorite stock buy of the two chipmakers given the lead it has created. However, I think AMD could also be a very solid investment, especially ahead of the console refresh cycle in the next few years.

Is it worth investing $1,000 in Nvidia now?

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 call options on Microsoft and short January 2026 $405 call options on Microsoft. The Motley Fool has a disclosure policy.