Both stocks should benefit from increasing AI infrastructure spending.
Spending on artificial intelligence (AI) infrastructure is skyrocketing. Five companies have committed to spending $700 billion on AI infrastructure this year, while famed portfolio manager Cathie Wood has predicted that capital expenditure on data centers will rise to $1.4 trillion by 2030.
This means that a lot of money will be spent on chips in the coming years. The question, however, is which chip stock seems like the best one to own: Nvidia (NVDA 2.21%) or Advanced micro devices (AMD +0.67%).
Image source: Getty Images.
Nvidia: the market leader
In terms of graphics processing units (GPUs), Nvidia is the clear market leader, and honestly, it’s not even close right now. It currently has a market share of around 90%, with AMD a very distant second.
Nvidia’s dominance in GPUs largely stems from its CUDA software platform. Nvidia created a software platform to program GPUs for tasks beyond their original intent, which was to speed up graphics in video games, much earlier than AMD. It then gave CUDA away for free and distributed it to universities and research labs doing early work in AI. This led to most of the fundamental AI code being written on the software, which is why it is the dominant player today, especially in training AI models.
Today’s change
(-2.21%)$-4.13
Current price
$182.81
Key data points
Market capitalization
$4.4 tons
Day range
$181.59 -$187.55
Range of 52 weeks
$86.62 -$212.19
Volume
5.4 million
Avg. full
180M
Gross margin
70.05%
Dividend yield
0.02%
As a result, Nvidia appears poised to remain the GPU leader for the foreseeable future.
AMD: An upstart
For AMD to be the better AI stock, it doesn’t have to overtake Nvidia in the GPU market. That’s just not going to happen. However, just a small share in a fast-growing market could go a long way. With Nvidia’s position in the AI inference market not being as broad, AMD has an opportunity to gain an edge in this segment. Meanwhile, the inference market is expected to eventually become much larger than the training market.
AMD has also signed a multi-year deal with OpenAI to supply the company with 6 gigawatts of GPUs, in a deal that could be worth around $200 billion. OpenAI plans to use the chips specifically for inference, and will require a gigawatt of chips for the first time later this year. The maker of ChatGPT will also receive a 10% stake in AMD based on the delivery of these chips, which is an incentive for AMD to do well.
Today’s change
(0.67%)$1.38
Current price
$207.32
Key data points
Market capitalization
$338 billion
Day range
$203.88 -$210.05
Range of 52 weeks
$76.48 -$267.08
Volume
26M
Avg. full
37M
Gross margin
45.99%
At the same time, AMD is also the leader in data center central processing unit (CPU) space, and the ability to combine its GPUs and CPUs could become an advantage at some point.
The verdict
I think both stocks will benefit immensely from the spending put into AI infrastructure in the coming years. Of the two stocks, however, I’d go with AMD as it has greater growth potential given its much smaller AI revenue base. It appears poised to remain the leader in CPUs, while just a few small gains in the GPU market could lead to rising revenues.
