Better Artificial Intelligence Stock: Nvidia vs. AMD

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Nvidia's (NASDAQ: NVDA) stock surged 2,750% over the past five years as the artificial intelligence (AI) market exploded. Nvidia once generated most of its sales from gaming GPUs for PCs, but the rise of generative AI platforms drove more companies to buy its high-end data center GPUs -- which are used to process complex AI tasks more efficiently than stand-alone CPUs.

Nvidia's early-mover advantage made it a simple way to profit from the secular expansion of the booming AI market, but some investors might be wondering if the hot chipmaker will run out of steam. Could AMD (NASDAQ: AMD), which generated a more modest gain of 380% over the past five years, represent a smarter way to profit from the AI market's growth?

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The differences and similarities between Nvidia and AMD

Nvidia and AMD are both fabless chipmakers that outsource their production to third-party foundries like Taiwan Semiconductor Manufacturing Company, but they operate different business models. Nvidia generates most of its revenue from discrete GPUs, and it relied on the data center market for a whopping 87% of its revenues in its most recent quarter. The rest of its revenue mainly came from the gaming, professional visualization, auto, and OEM markets.

AMD sells x86 CPUs for PCs and servers, discrete GPUs, and APUs, which merge a CPU and GPU together in a single package. It also sells programmable chips through Xilinx, which it acquired in 2022. In its latest quarter, AMD generated 48% of its revenue from its data center segment, which sells its Instinct GPUs and Epyc CPUs.

Nvidia controlled 88% of the discrete GPU market at the beginning of this year, according to JPR, while AMD held the remaining 12%. TechInsights estimates that Nvidia controlled a whopping 98% of the data center GPU market last year.

AMD is also an underdog in the x86 CPU market compared to Intel. According to PassMark Software, AMD currently controls 36% of that market while Intel holds a 61% share. However, AMD has been gaining ground against Intel over the past eight years as its larger competitor grappled with persistent chip shortages and delays.

In the GPU market, Nvidia's main strategy has been to sell pricier but more power-efficient chips than AMD. AMD usually sells cheaper but less power-efficient chips that can offer comparable performance to Nvidia's chips. That's why Nvidia's H100 GPUs currently cost roughly four times more than AMD's comparable MI300X Instinct GPUs.