AMD vs. Nvidia: Which Artificial Intelligence Stock Should You Buy on the Dip?

David Jagielski, The Motley Fool

Thu, May 8, 2025, 6:15 PM 5 min read

Key Points

Advanced Micro Devices and Nvidia are two chipmakers with a lot of potential growth ahead due to artificial intelligence.
They have, however, both been struggling this year and have underperformed the markets.

Has the excitement surrounding artificial intelligence (AI) stocks cooled off? Many top AI stocks are down this year, including Advanced Micro Devices (NASDAQ: AMD), better known as just AMD, and Nvidia (NASDAQ: NVDA). They have both declined around 15% thus far in 2025, which is worse than S&P 500's more modest drop of 4%.

There's still massive potential for AI to revolutionize businesses and entire industries, but investors have been starting to scale back their positions in AI. If, however, you're looking at the long haul, then now can be a great time to add a top AI stock to your portfolio. Which of these two chip stocks is the better option right now: AMD or Nvidia?

A smartphone displaying the words Speak Now. — Image source: Getty Images.

Comparing their valuations

Nvidia is one of the most valuable companies in the world, with a market cap of $2.8 trillion. That has come down a bit amid its recent decline (last year it was well above $3 trillion), but it's still close to 17 times the value of AMD, which has a market cap of around $165 billion. While AMD isn't a small company by any means, when compared to Nvidia, it looks tiny.

While you might think that Nvidia is the pricier of the two stocks given its massive valuation, based on earnings, it's actually the cheaper stock.

NVDA PE Ratio Chart — NVDA PE Ratio data by YCharts

Last year, AMD reported $1.6 billion in profit, while Nvidia, which has a fiscal year that ends in January, has generated an incredible $72.9 billion in earnings over its last four quarters. Not only has its business been experiencing explosive growth, but Nvidia's bottom line has been growing quickly as its profit margin has averaged 56%. That has enabled its price-to-earnings (P/E) multiple to remain relatively low.

By comparison, AMD's profit margin is just 6%. And with a more modest bottom line, it's the more expensive stock of the two when taking into account its earnings per share.

Which AI stock may have the most upside?

Both stocks have been struggling this year but when looking at the past 12 months, Nvidia is still up around 29% while AMD has fallen by 33%. A case could be made that AMD may be due for a rally, especially if its AI chips prove to offer formidable competition to Nvidia's high-priced options. AMD CEO Lisa Su previously forecast that the company could generate "tens of billions of dollars in annual revenue" in the near future due to its AI chips.

If AMD can generate that much growth, it can certainly help attract more investors and propel the stock to a much higher valuation. Thus far, it's lagged behind Nvidia in a big way. Last year, AMD's sales rose by 14%, while Nvidia more than doubled its revenue during its most recent fiscal year. But what also matters are AMD's margins, which need improvement. Otherwise, its P/E multiple may not come down significantly even if its growth rate accelerates. And a high premium could deter investors.

Nvidia is in pole position today, dominating the market and still innovating and coming up with new AI chips. AMD has to prove that it can put up some formidable competition. And until it does, that could limit its upside both in the near term and the long term.

Nvidia is the stock I'd go with today

AMD can potentially be a great long-term investment but it has a lot of question marks around its operations; it's far from a slam-dunk buy at this stage and it comes with some risk. Not only does it need to show that its chips can provide real competition to Nvidia, but the company also has to improve upon its single-digit profit margin.

With much stronger financials, a more attractive valuation, and a more dominant position in the market, Nvidia is the better AI stock to buy today.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.

AMD vs. Nvidia: Which Artificial Intelligence Stock Should You Buy on the Dip? was originally published by The Motley Fool

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