Why Nvidia Stock is an Easy Pick Over AMD

Nvidia (NVDA 2.18%) has been on a monster run since the start of 2023, but so has peer AMD (AMD 2.34%). While AMD is up 140% since the start of 2023, Nvidia has narrowed its run by growing around 700%. This has led some investors to believe that AMD could be set to outperform Nvidia in the future, but there is much more to this argument.

Despite its performance, I think Nvidia is a better investment choice than AMD because there is more to a company than its stock price performance.

Nvidia’s business is firing on all cylinders

Both companies make computer hardware of all varieties, but the breadth of their product lines varies between them. Nvidia is laser focused on making the best graphics processing units (GPUs). It has other product lines, but they are meant to complement its GPUs.

AMD also makes GPUs, but they are not as advanced as Nvidia’s and lack the top-of-the-line software to allow users to extract the most computing power. So in a head-to-head comparison in the GPU space, Nvidia’s product reigns supreme.

But AMD has a much bigger product line than just GPUs. The company has significant consumer exposure through its client division, which manufactures computer processors. It also makes products for various game consoles and has a line of embedded processors that allow customers to specify chips that are highly customized for their application. In addition to Nvidia-competing data center GPUs, it also has a wide variety of other components that go into these high-end servers.

Because AMD is much broader than Nvidia, it can’t take advantage of one massive trend. This is one of the reasons AMD underperformed Nvidia, as AMD’s results were mixed across divisions.

Data source: AMD. Note: YOY = Year Over Year.

Fortunately, AMD’s largest segments are the fastest growing, but the other competing divisions still act as an anchor for the overall business.

Nvidia has a similar setup to AMD with different divisions. However, its data center segment is so large that it makes the others practically insignificant when evaluating the business.

Data source: Nvidia. Note: YOY = Year Over Year. Note: Nvidia’s Q2 ended on July 28.

With the data center division doing so well and being much larger than any other division, Nvidia has become a great way to directly invest in the trend of building artificial intelligence (AI) infrastructure, which is set to continue for a long time.

This is why Nvidia looks like a much better choice now. But if AMD could be bought at the right price, it might not be a bad investment either.

AMD shares are trading at a higher premium despite Nvidia’s market dominance

Normally, when two companies compete against each other, the winner holds a premium rating for the company in second place. However, this is not the case with AMD and Nvidia.

AMD PE report data (before) by YCharts

On a price-to-earnings (P/E) basis, AMD is more expensive than Nvidia, despite Nvidia’s higher performance. This doesn’t make much sense, so if you’re trying to decide between the two, you’re probably better off buying the stock that’s outperforming and cheaper than the other.

Nvidia remains an easy choice over AMD as an investment right now. His exposure to one of the biggest trends in the industry since the Internet exploded is massive. If investors want direct exposure to the trend, then it’s smart to buy Nvidia stock instead of AMD.