AMD Stock Is a Fraction of Nvidia's Size but Trades on the Same AI Story. Here's Where the Two Actually Diverge.

Over the last few years, Nvidia (NASDAQ: NVDA) and Advanced Micro Devices (NASDAQ: AMD) have traded higher, primarily due to successes in the AI accelerator market. Over that time, Nvidia has dramatically outperformed AMD as it pioneered this market, while AMD has worked to close that gap.

Nonetheless, that stronger performance goes well beyond the AI accelerator industry. It also relates closely to the surprising differences between the two companies, and that divergence may also explain the differing value propositions between the two semiconductor stocks.

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Nvidia's dominance in AI accelerators

Admittedly, many of the differences relate to recent changes at Nvidia. As recently as four years ago, when it reported its numbers for the first quarter of fiscal 2023 (ended May 1, 2022), Nvidia was a more diverse company.

At that time, its data center segment, which now designs AI accelerators, had just become the company's largest business segment. The other large segment was gaming, which had traditionally been Nvidia's strength due to its specialty in producing GPUs. Professional visualization and its automotive and robotics segment were also smaller but significant parts of the business.

Fast-forward to the company's first quarter of fiscal 2027 (ended April 26, 2026), and the data center segment now makes up 92% of the company's revenue. Consequently, it no longer breaks out revenue for the other three segments that had existed four years ago, including gaming. Instead, the other 8% of its revenue comes from a segment focused on edge computing, which now includes its gaming products.

Fortunately, with the massive demand for AI chips, this approach has worked out well. Revenue rose by 85% in fiscal Q1 and 65% in fiscal 2026. Considering that the stock trades at just 31 times earnings, it has arguably become too cheap to ignore.

How AMD differs

In contrast, instead of focusing heavily on one business, AMD has more explicitly maintained the distinction of its primary business segments. That began when Lisa Su became AMD's CEO in 2014, and she shifted the company's emphasis to CPUs and GPUs.

Hence, when going back four years to the first quarter of 2022, computing and graphics, plus an enterprise, embedded, and semi-custom division, made up nearly all of its revenue.

Those segments changed to their present form one quarter later. However, the data center business, which designs its AI accelerators, is not dominant in the way Nvidia's is. Instead, it made up around 56% of revenue in the first quarter of 2026, with the client and gaming segment claiming 35% of AMD's revenue.

Its embedded segment claims the remaining 9% of revenue. This is not far below where it was when it first purchased Xilinx, indicating it has not abandoned this business.

Nonetheless, the data center business makes one wonder about AMD's direction. Is it going to become primarily focused on AI accelerators like Nvidia, or will it maintain more diversity?

The diversity strategy may be more likely. Since the embedded segment focuses on edge computing and physical AI, the company has good reason to maintain that segment. Additionally, investors should remember that AMD also focuses heavily on CPUs. These have become more critical to data center build-outs and are not a specialty for Nvidia.

That approach paved the way for AMD's 38% annual revenue growth in Q1 and a 34% annual gain in 2025. Indeed, its 161 P/E ratio may deter new investors. Still, even if it does not close the competitive gap with AI accelerators, AMD's diverse approach puts it in a strong position to remain competitive in the AI market.

Nvidia vs. AMD

When comparing Nvidia and AMD, it seems industry dominance, specifically when it comes to AI accelerators, has made Nvidia the standout between the two stocks.

Admittedly, AMD's diverse approach of CPUs, GPUs, and embedded chips that can support AI data centers should serve it well and is arguably the right approach as it seeks to catch up to Nvidia. Also, AMD's revenue growth is such that investors are unlikely to turn against the stock long-term.

However, that does not appear to be enough to overcome Nvidia's first-mover advantage in AI accelerators. Moreover, Nvidia offers faster growth and a much lower valuation, which appears to make the stock a better buy at this time.

Will Healy has positions in Advanced Micro Devices. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.