1 Top Artificial Intelligence (AI) Stock to Buy Right Now (Hint: It’s Not Nvidia)

When it comes to finding a top artificial intelligence (AI) stock to buy, investors may feel little incentive to look beyond. Nvidia. Indeed, CEO Jensen Huang’s decision to develop AI chips ahead of Nvidia’s competitors has made it the dominant chip company in a fast-growing and profitable niche. Naturally, investors want to own such a stock.

However, despite Nvidia’s market leadership, many investors will balk at the stock’s valuation. Indeed, given its share price, Nvidia appears to have little room to exceed the market’s lofty expectations. This situation may lead investors to look for opportunities in other AI stocks, and an Nvidia competitor could become a great alternative.

Consider this top AI stock

Investors looking for AI opportunities outside of Nvidia may want to consider one of its main competitors, Advanced microdevices (AMD -4.00%).

To counter Nvidia’s lead in AI chips, AMD has released its own AI accelerators. Its MI300 series of chips serves as an alternative for many customers who can’t get or afford Nvidia’s more expensive AI chips.

Actually, Oracle has just chosen AMD MI300X chips to power its latest OCI Compute Supercluster instance. This win is a sign that AMD has become a more formidable competitor in this market.

Following the MI300X chips, AMD plans to release the MI325X chips later this year. They will allow up to 288 GB of memory and accommodate bandwidths of up to 6 terabytes per second.

Moving forward, AMD will introduce its improved CDNA architecture in 2025, which should increase computing throughput. Given the company’s history of catching and sometimes outpacing its competitors, these advances could be significant for AMD and the AI ​​chip industry in general.

Signs of improvement

Of course, AMD’s current financials are unlikely to impress investors. Revenue of $11 billion for the first half of the year was up just 6% year over year. Also, net income of $388 million for the period shows it has only just begun to recover from losses of $112 million in the year-ago quarter.

However, the data center segment, which manages its AI chips, posted revenue of $5.2 billion in the first half of the year, a 98 percent year-over-year increase.

Also, the data center segment’s share of total revenue increased from 24% in the first two quarters of 2023 to 46% in the first half of this year. This likely mimics the growth model of Nvidia, which now derives 88% of its revenue from the data center segment. Three years earlier, the data center segment wasn’t even Nvidia’s biggest, a testament to how much AI accelerators can transform a semiconductor company.

Additionally, massive revenue declines in AMD’s gaming and embedded segments contributed to its growth rate. Assuming AMD can get those segments into a growth mode (or at least stop the declines), the company’s financial picture should improve.

So far, AMD’s growth has lagged behind its rival, as its stock is up just 15%, compared to Nvidia’s more than 155%. Also, the recent return to profitability has made the P/E ratio a poor representation of its valuation.

AMD data by YCharts

However, AMD stock trades for 12 times sales, compared to Nvidia’s price-to-sales (P/S) ratio of 33. If AMD can close much of its competitive gap, that stock could be poised to rise skyrocketing as AI chips increasingly become the company’s dominant revenue stream.

Investment in AMD

Given that potential, it could be AMD’s time.

Indeed, Nvidia’s early lead in AI chips caught the company by surprise. However, it has worked to compete and innovate in this area, and the revenue numbers bear this out. As with Nvidia, AMD’s data center segment is becoming more dominant thanks to its growing sales in AI chips.

Additionally, AMD’s stock price growth has been tepid this year, likely due to significant declines in the gaming and embedded segments.

Still, the market has priced Nvidia stock for perfection, implying limited near-term upside. Conversely, AMD has a tremendous advantage if it can maintain growth rates with AI chips and bring these struggling segments back to growth. This could create the conditions for AMD stock to outperform Nvidia, even if it hasn’t closed the technical gap.