Important points
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Nvidia’s dominance in AI accelerators has completely redefined the company.
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AMD continues to maintain a more diverse approach to data center components and does not change as much over time as Nvidia.
In recent years, Nvidia (NASDAQ:NVDA) and advanced micro device (NASDAQ: AMD) The stock price rose primarily due to success in the AI accelerator market. Meanwhile, Nvidia has pioneered this market and dramatically outperformed AMD, while AMD has worked to close the gap.
Nevertheless, its strong performance far exceeds the AI accelerator industry. It also goes hand-in-hand with the striking differences between the two companies, and that divergence may also explain the different value propositions of the two semiconductor stocks.
Forgot Nvidia in 2009? This unusual signal is flashing again.In 2009, a “double down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, a company 100 times smaller than Nvidia is flashing the same “full conviction” signal. Continued “
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Nvidia’s advantage in AI accelerators
Indeed, many of the differences are related to Nvidia’s recent changes. As recently as four years ago, when it reported its numbers for the first quarter of fiscal 2023 (ending May 1, 2022), Nvidia was a more diversified company.
At the time, the data center division, which now designs AI accelerators, had just become the company’s largest business unit. Another big segment is gaming, which has been a traditional strength for Nvidia, which specializes in producing GPUs. Professional Visualization and its automotive and robotics division were also a smaller but important part of the business.
Dating back to the company’s first quarter of fiscal 2027 (ending April 26, 2026), the data center segment currently accounts for 92% of the company’s revenue. As a result, the revenue from three other segments, including games, that existed four years ago has disappeared. Instead, the remaining 8% of revenue comes from a segment focused on edge computing, which now also includes gaming products.
Fortunately, this approach has worked because of the huge demand for AI chips. Sales grew 85% in the first quarter of fiscal year and 65% in fiscal year 2026. Considering its price-to-earnings ratio of just 31 times, it’s probably too cheap to ignore.
Difference with AMD
In contrast, AMD has maintained a clearer distinction between its major business segments, rather than focusing on a single business. It started when Lisa Su became AMD’s CEO in 2014 and shifted the company’s focus to CPUs and GPUs.
So if you go back four years to the first quarter of 2022, compute and graphics, plus enterprise, embedded, and semi-custom segments accounted for almost all of the revenue.
These segments were changed to their current format one quarter later. However, the data center business of designing AI accelerators is not as dominant as Nvidia’s. Instead, it accounted for about 56% of revenue in the first quarter of 2026, with the client and gaming division accounting for 35% of AMD’s revenue.
The embedded segment accounts for the remaining 9% of revenue. This is not far below the level it was in when it first acquired Xilinx, and shows that the company is not abandoning the business.
However, looking at the data center business, I am concerned about AMD’s direction. Will it primarily focus on AI accelerators like Nvidia, or will it remain more diverse?
A diversity strategy may be more likely. The embedded segment is focused on edge computing and physical AI, so there are good reasons for the company to maintain this segment. Additionally, investors should remember that AMD is also focused on CPUs. These are becoming more important to building data centers and are not Nvidia’s area of expertise.
This approach increased AMD’s annual revenue by 38% in the first quarter and paved the way for annual revenue growth of 34% in 2025. In fact, the company’s P/E ratio of 161x may deter new investors. Still, AMD’s diverse approach puts it in a strong position to remain competitive in the AI market, even if it fails to close the competitive gap with AI accelerators.
Nvidia vs. AMD
Comparing Nvidia and AMD, Nvidia appears to stand out between the two stocks when it comes to industry advantages, especially AI accelerators.
Indeed, AMD’s diverse approach to CPUs, GPUs, and embedded chips that can support AI data centers should serve it well, and is definitely the right approach as it aims to catch up with Nvidia. Additionally, AMD’s revenue growth has been so strong that investors are unlikely to turn against the stock over the long term.
But that doesn’t seem to be enough to overcome Nvidia’s first-mover advantage in AI accelerators. Additionally, Nvidia offers faster growth and a much lower valuation, so the stock seems like a better buy at this point.
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Will Healy holds a position at Advanced Micro Devices. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.
