Better Semiconductor Stock: AMD vs. Nvidia

The PHLX Semiconductor Sector index has been under duress this year and lost over 14% of its value thanks to the tariff-fueled economic uncertainty that has raised the potential of a global recession, which explains why some of the major names in this sector have performed poorly on the stock market in 2025.

Shares of both Advanced Micro Devices (NASDAQ: AMD) and Nvidia (NASDAQ: NVDA) are down close to 20% so far this year. However, the recent tariff-related developments suggest that these semiconductor stocks could see a solid comeback, especially considering their impressive results in recent quarters. From pausing reciprocal tariffs for 90 days to exempting duties on imports of semiconductors and other equipment from China to starting trade talks, there are signs of the trade war easing.

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China has reportedly rolled back retaliatory tariffs on certain semiconductor components made in the U.S. So, there is a good chance that the cloud of uncertainty hovering over companies such as Nvidia and AMD that have been caught in the trade war could clear and help these semiconductor stocks regain their mojo.

But if you have to buy one of these two chip stocks for your portfolio, which one should it be? Let's find out.

The case for AMD

AMD manufactures chips that go into applications such as data centers, personal computers (PCs), and gaming consoles, among others. The demand for AMD's chips that go into data centers and PCs has been picking up in recent quarters thanks to artificial intelligence (AI).

Specifically, AMD's revenue from data center chip sales shot up 69% year over year in the fourth quarter of 2024 to $3.9 billion. The company credited this impressive growth to a ramp-up in sales of its data center graphics cards and server processors. While Nvidia is the dominant player in the AI GPU market, AMD has been gradually gaining ground over here.

On its February earnings conference call, CEO Lisa Su remarked that the deployment of its MI300X AI accelerators "expanded with our largest cloud partners." The likes of Meta Platforms, Microsoft, IBM, and DigitalOcean are powering their AI models with AMD's chips, which is why the company has decided to accelerate the launch of its upcoming MI350 AI chips based on the CDNA 4 architecture.

AMD points out that the CDNA 4 architecture delivers a 35x jump in AI compute performance as compared to the previous generation CDNA 3. The company has received positive customer feedback and believes that the MI350 family of AI chips could drive "deeper and broader customer engagements with both existing and net new hyperscale customers."

AMD will begin shipments of the MI350 chips in the middle of 2025. So, there is a good chance that its data center revenue will continue to grow at a healthy pace thanks to AI. However, this is not the only AI-focused opportunity that the company is sitting on.

The adoption of AI PCs is giving AMD's client processor business a nice boost. Its revenue from this segment rose 58% year over year in the fourth quarter of 2024, thanks to the strong demand for its Ryzen processors. AMD reported record sell-through of its desktop processors in the fourth quarter of 2024 and exceeded 70% share at several major retailers.

The company is also pushing the envelope in the laptop space with the launch of 22 new mobile processors equipped with AI capabilities. AMD believes that its solid portfolio of laptop and desktop CPUs should help it grab a bigger share of the PC market in 2025. It is worth noting that AMD's overall CPU market share increased in the fourth quarter of 2024 to almost 25%, according to Mercury Research, and the points discussed above suggest that it can make a bigger dent in this market.

So, the robust demand for chips used in servers and computers should remain a tailwind for AMD in 2025 and beyond, driving healthy growth in the company's top and bottom lines.

The case for Nvidia

Nvidia's dominant position in the market for AI chips helped the company deliver impressive growth in recent quarters. Nvidia ended fiscal 2025 with $130.5 billion in revenue, up by 114% from the previous year. Its revenue guidance of $43 billion for the current quarter points toward a potential jump of 65% in its top line, suggesting that its healthy pace of growth is here to stay.

That's not surprising, as Nvidia reportedly controls a whopping 90% of the data center GPU market. This is also the reason why its data center revenue growth of 93% in the last reported quarter was higher than AMD's, even though Nvidia has a much larger revenue base. Looking ahead, Nvidia's technological advantage over AMD could help it remain the leading player in AI chips, and that puts the company in a terrific position to keep growing at a solid pace.

After all, the market for AI chips is expected to jump by 2.5x by 2029, generating an annual revenue of $311 billion. Nvidia's data center revenue of $115 billion in the previous quarter indicates that it still has a lot of room for growth in this space, and it may be able to corner a significant chunk of the end-market opportunity thanks to its massive share of this space.

Nvidia also has additional catalysts coming into play, such as the automotive market, where it is expecting its revenue to nearly triple this year following a 55% increase in the previous fiscal year. So, it is easy to see why analysts are forecasting Nvidia's earnings to increase by 48% in the current fiscal year, though don't be surprised to see the company doing better than that, as its margin profile should start improving once the production of its Blackwell AI processors ramps up.

So, just like AMD, even Nvidia is thriving on solid semiconductor demand. But is it a better buy than its peer? Let's find out.

The verdict

We have seen that Nvidia is on track to clock healthy earnings growth this year. A similar scenario is expected to unfold at AMD, with an estimated earnings jump of 33% in 2025. Importantly, AMD's bottom-line growth is expected to grow to 36% in 2026. However, Nvidia expects a slowdown as its bottom line is projected to grow 28% in the next fiscal year.

AMD's stronger growth forecast next year can be attributed to the company's diversified business, while the potential slowdown in Nvidia's earnings growth could be a result of intensifying competition in AI chips. What's more, AMD's price/earnings-to-growth ratio (PEG ratio) of just 0.44 indicates that it is undervalued after accounting for its annual projected earnings growth for the next five years, according to Yahoo! Finance.

Nvidia seems overvalued right now, with a PEG ratio of 1.57, which can be attributed to a potential drop in its pace of earnings growth. So, AMD seems like the better semiconductor growth stock to buy right now, considering the points discussed above, though investors cannot go wrong by choosing Nvidia either, as the latter's massive addressable opportunity could ensure years of solid growth and stock upside.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, DigitalOcean, International Business Machines, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.