This Artificial Intelligence (AI) Stock Just Landed a Deal Worth Over $100 Billion. Is It a Buy?

Nvidia (NASDAQ: NVDA) leads the pack in terms of data center computing hardware. Per IOT Analytics' estimates, Nvidia controls a 92% share of the market. That makes all the major artificial intelligence (AI) models dependent upon Nvidia graphics processing units (GPUs) to a high degree.

OpenAI, Anthropic, and more all need the company's products, and Nvidia has profited handsomely from it. Today, it's the world's most valuable company by market cap.

But, as the saying goes, don't put all your eggs in one basket. Nvidia has competitors like Alphabet with its Tensor Processing Unit (TPU) or the subject of this article, Advanced Micro Devices (NASDAQ: AMD), better known by its initials and symbol, AMD.

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Not looking to be an also-ran

At present, AMD has a 4% share of the data center GPU market. That's not much, but it's double the next-largest company, which is Huawei, at 2%.

It's second only to Nvidia in the market, which means it's in arguably the best position to chip away at Nvidia's lead. And that seems to be exactly what AMD is trying to do.

Late last year, AMD signed an agreement with OpenAI that will see it supply the AI start-up with hundreds of thousands of chips and allow OpenAI to buy up to a 10% stake in AMD. AMD expects the agreement to generate more than $100 billion in revenue from OpenAI alone.

But the deals didn't stop there. In February of this year, AMD signed another agreement with Meta Platforms to provide it with 6 gigawatts of its Instinct GPUs.

Along with those two, Microsoft and Oracle have both announced that they will purchase AMD's hardware. It's far from exclusive, and both companies are likely to continue buying plenty from Nvidia, but it will help AMD gain market share.

All signs point to AMD gaining traction in the industry. It will likely be some time before AMD threatens Nvidia's dominance, if it can manage to do so in the first place. But an investment in AMD can help diversify your GPU investment portfolio, and with the company's latest results, it's looking like a serious growth prospect.

For 2025, AMD brought in $34.6 billion, up 34% over 2024, and its diluted earnings per share (EPS) grew 26% over the same period. While AMD's net margin is lower than Nvidia's at 12.3% and 55.6%, respectively, AMD's is still solid, which likely has a lot to do with pricing.

The reason AMD is shaping up to be a competitor to Nvidia is that, at least on the consumer side, its GPUs offer comparable performance to their Nvidia counterparts while costing considerably less.

All other things being equal, lower prices generally equal lower margins. But if AMD's hardware is good enough, it can snatch some market share away from Nvidia even if Nvidia's hardware is superior in some ways.

That's AMD's avenue of attack to gain market share over Nvidia, and it seems to be working based on the deals the company is locking in. It could pay to have shares of both companies in your portfolio to hedge your AI hardware bet.

James Hires has positions in Alphabet. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Meta Platforms, Microsoft, Nvidia, and Oracle. The Motley Fool has a disclosure policy.