Nvidia vs. AMD: Which AI CPU Stock Is the Better Buy?

In recent years, everyone has been talking about graphics processing units (GPUs). That's because these are the chips that power crucial artificial intelligence (AI) tasks like the training of large language models. Companies with expertise here saw their revenue soar. Two perfect examples are Nvidia (NASDAQ: NVDA) and Advanced Micro Devices (NASDAQ: AMD).

Though Nvidia dominates the market, AMD is also present here and has benefited from this AI story. Now, however, another type of chip is emerging as a key player in AI. And that's the central processing unit (CPU) -- these are the main processors you'll find in every computer. As agentic AI emerges, it's become clear that the CPU might be the star. Agentic AI involves AI actually taking the steps, on behalf of humans, to solve a problem or problems. And the CPU offers exactly the kind of fuel needed to guide this process.

Nvidia and AMD are also present in the CPU market -- but it's important to note that in this area, AMD is a leader, while Nvidia is more of a newcomer. Which AI CPU stock is the better buy today? Let's find out.

Image source: Getty Images.

The case for Nvidia

Nvidia has benefited greatly from the need for GPUs as this AI story unfolds. And this continues as GPUs are an integral part of the AI picture, and Nvidia's innovation helps it maintain its leadership. The company is launching its Vera Rubin platform this fall, and that should offer earnings and the stock price a boost.

At the same time, Nvidia also is launching its first-ever stand-alone CPU, and the company says it aims for leadership in the $200 billion CPU market. Nvidia forecasts $20 billion in stand-alone CPU sales this year alone, showing incredible progress right out of the gate. At the same time, Nvidia also is going after the CPU for personal computing market. The company is launching a superchip this fall that includes a GPU and CPU -- this will be a premium price product, but the company plans on expanding into other price points in the future.

So it's clear that this AI leader has strong ambitions in the CPU market.

The case for AMD

Though Intel is the global leader in CPUs, with nearly 60% market share, AMD comes in second with nearly 39% of the market. While it's true that Nvidia may take leadership in the CPU for data centers market, it might be more difficult for the AI giant to dominate in the PC market.

In the desktop market, AMD's share, topping 52%, has even surpassed that of Intel. So, while Nvidia's CPU ambitions aren't the best news for AMD, this longtime CPU giant may not relinquish its position so easily. At the same time, with demand from agentic AI soaring, there's room for more than one company to generate growth.

We've seen this in the area of GPUs. AMD entered this market later than Nvidia, but it has still seen success, and that's likely to continue. In the recent quarter, the company said demand for AI infrastructure has picked up momentum, and data center is now the company's major earnings growth driver.

Which stock is the better buy?

As mentioned, both of these companies are winning in the GPU market even though Nvidia remains the leader. Now, I think the same thing may happen in the CPU market -- there will be plenty of AI demand to generate revenue growth at Nvidia and AMD. As for which company will dominate, Nvidia might have the edge in the data center market, thanks to its current strengths there.

AMD might hold onto its PC leadership -- it may be tough for Nvidia to expand beyond the premium-priced models and win over the general PC market.

Still, I see both of these companies as winners of the AI boom over time. But the best buy now clearly is Nvidia, and that has to do with valuation. While AMD trades at 70x forward earnings estimates, Nvidia looks dirt cheap at only 21x estimates. So Nvidia offers investors a better CPU buying opportunity right now.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, and Nvidia. The Motley Fool has a disclosure policy.