This year, the Nvidia (NASDAQ: NVDA) share price has been on a tear. A rally of 56% over the past 12 months reflects soaring demand for artificial intelligence (AI) chips. With both revenue and earnings climbing by more than 80% year on year, Nvidia now commands a staggering $4.43trn market cap, making it the world’s largest company — nearly twice the size of Amazon.
To boost things further, the major chip maker has reportedly agreed a deal with the US government to sell its H20 AI chips to China — subject to a 15% levy on all related revenue. While this allows it to maintain access to a lucrative market despite export controls, the levy could compress margins. The financial impact will depend on sales volumes, but strong demand in China may still make the venture profitable.
Impressive financials aside, there are growing signs that a recovering rival could challenge Nvidia’s dominance.
Competing AI chips
In contrast to Nvidia’s massive global stature, AMD (NASDAQ: AMD) is a relatively small player with a market capitalisation of around $300bn. Over the past five years, the AMD share price has gained a respectable but modest 125%, dwarfed by Nvidia’s 1,470% leap.
Yet the tables appear to be turning.
AMD’s sales growth is up 27% year on year, and earnings per share (EPS) are up a staggering 109%. More importantly, the firm is ploughing capital into research and development — its R&D spend now represents 23.55% of revenue, among the highest levels for any tech company on the Nasdaq 100.
Investor excitement has centred around AMD’s upcoming MI450 chip, the company’s first rack-scale, 72-processor AI server system. It sets out to go toe-to-toe with Nvidia’s Rubin architecture. Some analysts initially speculated that Nvidia may delay Rubin to rebalance the competition, but it has firmly denied this, insisting it remains on track for a 2026 release.
Even so, AMD is already gaining traction. A recent event saw the launch of its MI350 and MI400 series chips, including the Helios AI server, and it has secured OpenAI as a collaborator in its MI450 design.
But all this R&D investment brings risk, as it stands to gain or lose based on its MI450 performance. Should the chip underdeliver or fail to gain traction, the share price may suffer just as severely as it recovered this year.
Meanwhile, the threat of geopolitical upheaval is still a notable concern. The US trade tariffs situation remains uncertain and could upset Asia-Pacific supply chains, potentially hurting both AMD and Nvidia’s profits.
No slowdown in AI demand
Demand for AI infrastructure doesn’t show any signs of slowing in the near future. Foxconn, the world’s largest contract electronics manufacturer and a major assembler of Nvidia servers, recently reported strong Q2 results, with profit up 27% to $1.48bn. This result underscores just how hot demand remains.
From a portfolio standpoint, Nvidia remains a formidable and promising stock but so too is AMD, particularly if the MI450 delivers.
Given the sky-high demand, I see no reason why both companies can’t profit. Nvidia appears to lead on scale and innovation, while AMD is emerging as a viable alternative.
For investors looking for exposure to the AI boom, both stocks are worth considering, in my book.
