AMD Stock Is Up 320% Over the Past Year. Should Investors Shift Their Attention Away From Nvidia?

Shares of Advanced Micro Devices (NASDAQ: AMD) have rocketed more than 320% over the past year as investors have followed AMD's growth story in providing processors for agentic artificial intelligence (AI).

The gains for Nvidia aren't anything to be embarrassed about; the stock has jumped 82% over the past 12 months, compared to the S&P 500's 32% gains.

But the big disparity between AMD's and Nvidia's gains certainly has many investors wondering whether they should shift their attention away from Nvidia and toward AMD as it rises. If you're looking to diversify your AI hardware investments, then buying AMD could be a good idea. But completely ditching Nvidia probably isn't the best move.

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AMD is surging higher thanks to agentic AI and inference

There have been several cycles of the AI boom already, and at least for AMD, the two aspects of the technology driving the company's sales of central processing units (CPUs) right now are inference (training AI) and agentic AI. Here's what CEO Lisa Su said on the first-quarter earnings call about these opportunities: "As inferencing and Agentic AI deployment scale [up], they are fundamentally increasing compute requirements, driving both larger-scale accelerator deployments and significantly more CPU compute. AMD is uniquely positioned to lead in this next phase of AI with leadership products across high-performance service CPUs and AI accelerators."

That's kind of a mouthful, but essentially AMD believes it's in a great position to offer unique hardware for inference and AI agents -- and customers are already lining up. Total revenue in the first quarter rose 38% to $10.3 billion, and its data center sales jumped 57% to $5.8 billion.

All of this recent growth spurred management to revise its server CPU total addressable market, and it now estimates it be $120 billion by 2030 -- double its previous estimates. What's more, the company raised its second-quarter revenue guidance to $11.2 billion, 46% higher than its previous estimate.

The advantage for AMD is that the company offers both CPUs and graphics processing units (GPUs), and the mix of AI computing needs is shifting. For example, the company says the ratio of CPUs to GPUs for agentic AI and inference used to be one CPU to four GPUs (or even 1 to 8). Now, it says the ratio is closer to 1 to 1.

AMD says that agentic AI creates incremental CPU tasks that its processors are great at running. The resulting opportunity is that management thinks it can offer customers a fully integrated AI solution with both CPUs and GPUs for the next iteration of AI needs.

Is it time to ditch Nvidia for AMD?

Given AMD's share price gains and its growing influence in the AI hardware space, I understand why some investors want to shift their attention from Nvidia to AMD. But I think it may be a smarter move to own both stocks right now, if you can.

Consider that the other side of the 1-to-1 ratio of AI needs for CPUs and GPUs ... are GPUs. And Nvidia still dominates this market, accounting for an estimated 86% of revenue for data center GPUs. That lead won't fade anytime soon, and as long as AI data centers need GPUs, Nvidia's processors will remain a dominant force.

Its shares are also much cheaper. Nvidia has a price-to-earnings ratio (P/E) of 40, compared to the tech sector's average P/E of about 43 -- and AMD's is 136.

If you buy AMD now, just know you're paying a premium for those shares. That not only means the company will have to continue growing at an exceptional rate to justify its price, but it can also cause investors to set expectations very high. If AMD fails to match expectations in the coming quarters, investors could pull back on their optimism.

Still, spreading out your investments across these two leading AI stocks is likely a good long-term move. Tech companies are increasingly in need of CPUs and GPUs, and AMD and Nvidia are two companies best positioned to continue benefiting from this demand.

Chris Neiger 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.