Is AMD Stock a Hidden Gem Compared to Nvidia’s AI Dominance?

AMD vs Nvidia: The semiconductor showdown heating up Wall Street.

Price-Performance Play

While Nvidia grabs headlines with record-breaking AI chip sales, AMD quietly positions itself as the value alternative—offering comparable tech at friendlier multiples. Their Instinct MI300 series chips go toe-to-toe with H100s while costing significantly less per compute unit.

Market Positioning

AMD isn't trying to out-Nvidia Nvidia. Instead, they're carving niches in cloud infrastructure and edge computing—areas where cost efficiency matters more than raw benchmark scores. Their partnership with major cloud providers demonstrates strategic groundwork rather than flashy marketing.

Financial Realities

Let's be real—every fund manager now owns Nvidia like it's 1999 Cisco Systems. AMD trades at relative discount precisely because it lacks that cult-like institutional obsession. Sometimes the second-best horse actually wins the long race when valuations matter again.

The bottom line? AMD represents calculated contrarian thinking in a market drunk on AI hype. Because nothing says 'smart investment' like buying what everyone else ignores before they realize they should care.

Image source: Getty Images.

How the stocks compare with respect to earnings

Although Nvidia is the more valuable company overall, it's also much more profitable than AMD. That's why comparing stocks based on their respective price-to-earnings (P/E) multiples is a much more effective way to gauge how cheap or expensive one stock is in relation to another. And the chart below shows what their forward P/E multiples are, which are based on analysts' expectations of their future profits.

Data by YCharts.

While their valuations are significantly different in terms of market cap, based on their forward P/E multiples, they are similarly valued, and AMD is in fact the more expensive stock when looking at this metric.

Why AMD may be a bit underrated

Nvidia is bigger, more profitable, and the safer-looking stock when compared to AMD. But a case can be made for why AMD could still be an underrated investment. It recently rolled out its new Instinct MI400 chip, which will be available next year. And CEO Lisa Su recently told analysts that for its current version, the MI350, "seven of the top 10 model builders and AI companies" already use it.

If the MI350 is already attracting top AI companies, then the more advanced MI400 chip may be able to benefit from that and drive even more growth for the business. AMD's growth rate has been climbing in recent quarters while Nvidia's has been going in the opposite direction.

Data by YCharts.

Should these patterns continue, then it may not be difficult to envision a scenario in which analysts hike their forecasts for AMD, which may make it appear to be a cheaper buy down the road. As a bit of a laggard in the AI chip market, AMD hasn't been nearly as exciting a growth stock as Nvidia, but that could soon change.

Which stock should you buy?

Although these two stocks are similarly valued based on their projected earnings multiples, AMD still looks like it may have more upside in the long run, simply because its results haven't been as impressive as Nvidia's thus far. However, if its growth rate continues to improve as Nvidia's slows down, it may be due for a big rally. So far this year, AMD's stock is up over 34% while Nvidia's has risen by 27%, as investors are starting to feel a bit more bullish on AMD.

Nvidia remains the safer stock to go with in the long run, given its dominance in the AI chip market. But if you're looking for a bit more upside and don't mind taking on some risk and a bit more uncertainty, then AMD could be the better option at this stage. Even though it may not be a bargain buy and still has to deliver some stronger financials to show that it can offer significant competition to Nvidia, I think it's on the right path and has the potential to be the better AI stock to buy at this point.