Better AI Infrastructure Stock: Nvidia vs. AMD

Artificial intelligence (AI) spending shows no signs of slowing as tech companies compete to offer the best AI models and sell advanced computing services to their customers. The latest estimates put AI data center infrastructure spending at around $750 billion this year and more than $1 trillion next year.

Two of the undisputed winners in this market are chip companies Nvidia (NASDAQ: NVDA) and Advanced Micro Devices (NASDAQ: AMD). Over the past three years, their share prices have soared 341% and 334%, respectively.

But which company is the better AI infrastructure stock to own over the long term? Both stocks are worth owning, but Nvidia is likely the best. Here's why.

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AMD is on the rise, but its shares are expensive

AMD designs both graphics processing units (GPUs) and central processing units (CPUs). GPUs have been the backbone of the AI data center infrastructure build-out, benefiting AMD and its rival Nvidia. AMD's data center revenue more than doubled in the most recent quarter to $6.7 billion.

And the company is beginning to tap into new demand for CPUs, too. As more tech companies focus on building out AI agents, demand for CPUs -- which are well-suited to processing agentic tasks -- will increase in the coming years.

Raymond James analyst Simon Leopold thinks the CPU market could reach $201 billion by 2030, and AMD's management recently said its total addressable market for CPUs will be $220 billion that year.

Whichever estimate is more accurate, AMD is already benefiting from the increased demand. AMD CEO Lisa Su said on the second-quarter earnings call that strong CPU growth will drive server revenue up 70% this year and help data center revenue "more than double" in 2027.

AMD is clearly well-positioned to benefit from growth in CPU and GPU demand in the coming years as tech companies continue to invest heavily in AI infrastructure.

But one big negative for AMD is that its shares are expensive. AMD stock has a trailing price-to-earnings (P/E) ratio of 121 right now, which is much higher than the tech sector average of 33.

That doesn't mean AMD isn't worth owning, but it does mean that investors are paying a high premium if they buy the stock right now. And, as we're about to see, Nvidia is a cheaper way to play the AI infrastructure boom.

Why Nvidia is the better AI infrastructure stock

If there were any doubts among investors about whether Nvidia was still the king of the AI infrastructure boom, they were put to rest after the company released its second-quarter results.

Nvidia's total sales more than doubled in the quarter to $96.2 billion, easily outpacing Wall Street's consensus estimate of $92.1 billion. The growth was fueled by the Nvidia data center segment, with revenue rising 117% as tech giants continue clamoring for its GPUs.

The company also reported adjusted earnings of $2.22 per share -- a very impressive 120% increase from the year-ago quarter.

And one of the most important indicators that Nvidia's growth isn't running out of steam yet came from Nvidia's management issuing revenue guidance for the third quarter of about $108 billion. That would represent an 89% increase from the year-ago quarter.

Nvidia still holds a very large lead in the AI data GPU market, with an estimated 86% market share. And as companies ramp up spending in the coming years on more AI data center capacity, it's likely the company will continue to benefit from this expansion.

And not only is Nvidia growing quickly and tapping into the expanding AI market, but its shares are still inexpensive. Nvidia's stock has a P/E ratio of about 29, making it far cheaper than AMD's stock and lower than the tech sector average.

While AMD is successfully tapping into an expanding GPU and CPU market, Nvidia's growth is even more impressive, and its shares are cheaper, giving the company the edge over its semiconductor peer.

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.