I've Changed My Mind on AMD. The AI Supercycle Has Room for More Than Just Nvidia.

For years, I thought Nvidia (NASDAQ: NVDA) was in a league of its own. And I was mostly right, considering that the company still holds about 86% of the data graphics processing unit (GPU) market.

That dominance helped Nvidia become the $5.4 trillion company that it is today, as artificial intelligence companies scoop up as many of Nvidia's GPUs as they can for their data centers.

But one of Nvidia's chip rivals, Advanced Micro Devices (NASDAQ: AMD), is carving out its own semiconductor niche in the current AI supercycle that I never saw coming.

Here's how AMD is benefiting from AI and why there's plenty of room for both companies to benefit.

Image source: The Motley Fool.

Data center push is big enough for both

AMD is a chip designer, just like Nvidia. Still, for years, it's been in Nvidia's shadow because its GPU market share was much smaller than its rival's and because Nvidia's processors were the best for training artificial intelligence.

Not much has changed -- and Nvidia's processors are still in high demand -- but what's different now is that central processing units (CPUs) are beginning to have their day in the sun.

As AI agents have become more popular, tech companies are shifting attention back to CPUs because they're very good at processing agentic tasks quickly. Up until recently, the majority of processors in a data center were GPUs, but there's now an increasing need for CPUs.

AMD CEO Lisa Su said on the company's first-quarter 2026 earnings call that the ratio of GPUs to CPUs in servers used to be 4:1, and sometimes even 8:1.

Now, it's shifting close to a 1:1 ratio.

There is so much momentum in this space that AMD's management now believes the company's total addressable market for data center CPUs will be $220 billion by 2030.

And AMD investors won't have to wait for this market to materialize. With demand for its CPUs already on the rise, AMD's management recently said the company's CPU server revenue will jump 70% in 2027.

This shift is also coming at a time when AMD is already seeing explosive demand for its GPUs, too. The company's second-quarter data center sales (which come mostly from GPU sales) increased 107% to $6.7 billion. That helped the company's total sales jump 50% to a record $11.5 billion.

And there's little sign that AI infrastructure spending is slowing. The latest estimates are for global AI infrastructure spending to reach $1.3 trillion in 2027 -- up from about $750 billion this year.

You don't even have to take AMD's word for it that the CPU market is expanding, either. Raymond James analyst Simon Leopold recently said that this market could reach $201 billion in the next four years. And DA Davidson upgraded AMD stock to a buy back in April, citing the "unprecedented" demand for server CPUs.

AMD stock is worth owning, but with one big caveat

With AMD's total sales up 50% in the second quarter, data center revenue doubling, and a lot of new potential emerging from its CPU server business, I think investors could benefit from owning AMD stock. The AI boom may already feel old, but the agentic AI market is just getting started.

But buying AMD right now comes with the caveat that the company's shares are expensive. AMD stock has forward price-to-earnings ratio of 40, which is far above the tech sector average of about 21. As such, some of the company's long-term opportunities may already be priced into the stock's 284% gains over the past year.

Still, if you want to spread some of your AI investments around, putting a small amount toward AMD stock right now might not be a bad idea.

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.