Investors who own Nvidia stock might benefit from adding its top competitor to their portfolio.
Nvidia (NVDA 1.99%) CEO Jensen Huang thinks data center operators will spend $1 trillion upgrading their infrastructure over the next five years in order to support demand from artificial intelligence (AI) developers. Part of that money will be spent on graphics processing units (GPUs), which are the optimal chips for AI training and AI inference.
Nvidia is the top supplier of data center GPUs, and its stock has soared 173% in 2024 on the back of powerful sales growth. However, competition is ramping up, and Advanced Micro Devices (AMD -1.53%) launched its own GPUs, which have attracted some of Nvidia’s biggest customers so far.
The Wall Street Journal tracks 56 analysts who cover AMD stock, and the overwhelming majority have given it the highest possible buy rating. Not to mention, there isn’t a single analyst who recommends selling. Here’s why AMD stock might be a great buy right now, especially for investors who already own Nvidia.
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AMD’s AI opportunity goes beyond the data center
Nvidia’s flagship H100 data center GPU went into production in September 2022, and it helped the company capture an estimated 98% market share in 2023 as there was practically no competition. That was until AMD launched the MI300X GPU in December, and despite being over a year behind, uptake has been very promising in 2024.
The MI300X is now used by many of Nvidia’s top customers, including Microsoft, Oracle, and Meta Platforms. According to AMD, many of them are yielding better performance and a lower cost of ownership by using the MI300X compared to the H100, which is a positive sign in the company’s quest to take market share from Nvidia.
AMD will start shipping its new MI325X to customers this quarter, which delivers up to 20% better AI inference performance than Nvidia’s H200 (which superseded the H100 earlier this year). Since AI developers often rent computing capacity from data center operators on a per-minute basis, any improvement in speed can result in substantial cost savings.
However, investors are already looking ahead to AMD’s MI350 series, which is expected to reach customers in the second half of 2025. It’s based on a new architecture called CDNA (Compute DNA) 4, which will deliver a performance boost of 35 times compared to CDNA-3-based GPUs like the MI300X. The MI350 is AMD’s answer to Nvidia’s latest Blackwell-based GPUs, which are the source of “insane” demand (according to Jensen Huang) and have just started shipping.
But AI is quickly migrating from the data center and into computers and devices. AMD’s new Ryzen AI 300 series of central processors (CPUs), neural processors (NPUs), and GPUs are designed to process AI workloads on-device, which reduces the reliance on external data centers to create a much faster user experience.
Millions of Ryzen AI-powered PCs have been shipped already from leading manufacturers like Lenovo, Microsoft, and HP. Lenovo and HP plan to triple the number of Ryzen AI devices they offer by the end of 2024, and AMD expects there will be over 100 commercial platforms using the AI chips in 2025 as businesses seek to upgrade to the latest technology.
AMD’s AI-related revenue soared during Q3
AMD just reported its financial results for the third quarter of 2024 (ended Sept. 28), and the company delivered a record $6.8 billion in total revenue, which was an 18% increase from the year-ago period. However, there were some even stronger results beneath the surface of that headline number, thanks to AI.
AMD’s data center revenue soared 122% year over year to $3.5 billion, which was also a record, led by strong GPU sales. Coming into 2024, AMD CEO Lisa Su told investors the company could generate $2 billion in data center GPU revenue throughout the entire year, but that number is now set to come in at more than $5 billion.
AMD’s client segment — which is home to the Ryzen AI series of chips — grew revenue by 29% to $1.9 billion. Lisa Su believes the AI PC cycle is still in its very early stages, so investors should expect strong growth in this segment going forward.
On the flipside, AMD delivered very weak results in its gaming segment. Revenue declined by 69% as demand slowed for consoles like Sony‘s PlayStation 5 and Microsoft’s Xbox, and also because desktop PC gamers are waiting for AMD’s next-generation GPUs, which will ship in 2025.
Wall Street is very bullish on AMD stock
AMD has delivered $3.00 in non-GAAP (adjusted) earnings per share over the last four quarters. Based on its stock price of $148.60 as of this writing, it trades at a price-to-earnings (P/E) ratio of 49.5. That makes it slightly cheaper than Nvidia stock, which trades at a P/E ratio of 63.1.
Plus, Wall Street analysts (according to Yahoo) estimate AMD will generate $5.20 in earnings per share in 2025, placing its forward P/E ratio at just 28.6. Considering the stock market is a forward-looking machine, that might be the reason analysts have reached such a bullish consensus on AMD.
Of the 56 analysts tracked by The Wall Street Journal, 39 have given AMD stock the highest possible buy rating. Eight others are in the overweight (bullish) camp, while nine recommend holding.
At the top, I mentioned Jensen Huang’s prediction that data center operators will spend $1 trillion on AI infrastructure over the next five years. Well, AMD believes the market for the chips alone will be worth $500 billion by 2028, representing a whopping 60% growth per year between now and then.
Nvidia might be the frontrunner in capturing most of that value, but considering AMD’s recent data center GPU sales growth and its innovation pipeline — which includes the upcoming MI350 — this company could be a serious threat over the next few years.
Nvidia’s market share will inevitably decline over time as competition grows, so for investors who already own that stock, buying AMD stock could be the ultimate hedge. But this stock might also be a fantastic long-term buy for investors who are diving into the AI chip space for the very first time.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, HP, Meta Platforms, Microsoft, Nvidia, and Oracle. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.