<p>When investors talk about artificial intelligence (AI) chips, they often mention <strong>Nvidia</strong> <span class="ticker-mention inline-flex items-center font-bold">(NVDA <span class="ml-1 text-green-900">+1.06%</span>)</span>. It's the world's largest producer of discrete GPUs for data centers, where they're used to process complex AI tasks. Most of the world's top AI companies, including <strong>Microsoft</strong> <span class="ticker-mention inline-flex items-center font-bold">(MSFT <span class="ml-1 text-red-900">0.02%</span>)</span> and OpenAI, use its chips.</p>
<p>But <strong>Advanced Micro Devices</strong> <span class="ticker-mention inline-flex items-center font-bold">(AMD <span class="ml-1 text-green-900">+2.15%</span>)</span> -- which controls a much smaller slice of the discrete GPU market -- has been gradually rolling out more data center GPUs to challenge Nvidia. Could this underdog chipmaker become the next big growth story in AI chips?</p>
<div class="image"><img alt="A visualization of a digital brain." width="580" height="326" class="h-auto max-w-full rounded object-contain" src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/editorial/images/838196/visualization-of-a-digital-brain.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" original-src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/editorial/images/838196/visualization-of-a-digital-brain.jpg"/>
<p>Image source: Getty Images.</p>
</div>
<h2>Is AMD an emerging threat to Nvidia's AI dominance?</h2>
<p>Nvidia generates most of its revenue from discrete GPUs. AMD produces a wider range of x86 CPUs for PCs and servers, discrete GPUs, and APUs (accelerated processing units), which merge together a CPU and GPU on a single chip for smaller PCs and gaming consoles.</p>
<p>Nvidia dominates 94% of the discrete GPU market, according to JPR, while AMD only controls about 6%. In the past, AMD tried to keep pace with Nvidia by selling cheaper GPUs, which offered comparable performance but consumed more power. However, it eventually lost that advantage as Nvidia expanded its lineup of lower-end gaming GPUs for PCs.</p><div class="flex justify-center"></div>
<section><div class="flex flex-wrap place-content-between"><div class="flex w-full place-items-center lg:w-3/4"><div class="p-[8px] text-center" style="width: 95px"><small><div class="flex flex-col items-center gap-2">Expand</div></small></div><div class="py-4 pr-4"><img alt="Advanced Micro Devices Stock Quote" width="64" height="64" class="w-full flex-none object-contain" src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vYXJ0L2NvbXBhbnlsb2dvcy9tYXJrL0FNRC5wbmcmdz0xMjg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" original-src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vYXJ0L2NvbXBhbnlsb2dvcy9tYXJrL0FNRC5wbmcmdz0xMjg"/></div><div class="pr-[16px]"><h2>NASDAQ: AMD</h2><div class="text-md leading-[1] font-medium text-gray-800">Advanced Micro Devices</div></div></div><div class="flex w-full place-items-center lg:w-1/4"><div class="h-full w-5/6 px-4 py-2.5 lg:text-right bg-green-200"><div class="mb-[2px] text-[10px] text-gray-800">Today's Change</div><div class="mb-6 text-[18px] leading-none font-medium text-green-900">(2.15%) $4.94</div><div class="mb-[2px] text-[10px] text-gray-800">Current Price</div><div class="text-gray-1100 text-[18px] leading-none font-medium">$235.17</div></div><div class="flex h-full w-1/6 items-center justify-center py-2.5 bg-green-900"></div></div></div><div class="flex flex-wrap overflow-hidden transition-all duration-300 h-0"><div class="w-full border-t border-gray-300 p-2 lg:w-3/4 lg:border-r lg:p-6"></div><div class="w-full p-2 lg:w-1/4 lg:p-4"><h3>Key Data Points</h3><div class="text-gray-1100 my-[14px] grid grid-cols-2 text-sm"><div class="border-b border-gray-300 py-[14px] text-gray-800">Market Cap</div><div class="border-b border-gray-300 py-[14px] text-right font-bold">$381B</div><div class="border-b border-gray-300 py-[14px] text-gray-800">Day's Range</div><div class="border-b border-gray-300 py-[14px] text-right font-bold">$228.55 - $235.90</div><div class="border-b border-gray-300 py-[14px] text-gray-800">52wk Range</div><div class="border-b border-gray-300 py-[14px] text-right font-bold">$76.48 - $242.88</div><div class="border-b border-gray-300 py-[14px] text-gray-800">Volume</div><div class="border-b border-gray-300 py-[14px] text-right font-bold">1.2M</div><div class="border-b border-gray-300 py-[14px] text-gray-800">Avg Vol</div><div class="border-b border-gray-300 py-[14px] text-right font-bold">63M</div><div class="border-b border-gray-300 py-[14px] text-gray-800">Gross Margin</div><div class="border-b border-gray-300 py-[14px] text-right font-bold">43.20%</div><div class="border-b border-gray-300 py-[14px] text-gray-800">Dividend Yield</div><div class="border-b border-gray-300 py-[14px] text-right font-bold">N/A</div></div></div></div></section>
<p>AMD launched its first batch of Instinct GPUs for data centers (MI6, MI8, and MI25) back in 2017. However, it didn't make much of an impression in that market until it launched its MI300 Instinct GPUs -- which were built on TSMC's 5nm and 6nm nodes -- in late 2023.</p><div><div id="in_line_article_pitch_container" class="pitch-container"></div></div>
<p>AMD's top-tier MI300X actually beat Nvidia's older H100 GPU -- which is still widely used to process AI tasks -- in several industry benchmarks of raw processing power and memory bandwidth. Companies could also buy roughly four MI300 GPUs for the price of a single H100 GPU.</p>
<p>Nvidia's new H200 (Blackwell) GPU outperforms the MI300X for most AI tasks, but it's still roughly twice as expensive as AMD's MI300X GPUs. Some of AMD's MI300 chips are even APUs, which eliminate the need for stand-alone CPUs. Nvidia doesn't produce any x86 CPUs or APUs.</p>
<h2>How fast is AMD's AI business growing?</h2>
<p>AMD doesn't disclose its sales of Instinct GPUs separately. Instead, it groups them with its EPYC CPUs for servers in its data center segment. But over the past year, that core growth engine cooled off as its weight on AMD's top line declined.</p><div class="flex justify-center"></div>
<div class="table-responsive"><table><colgroup><col/><col/><col/><col/><col/><col/></colgroup><tbody><tr><th>
<p>Metric</p>
</th><th>
<p>Q2 2024</p>
</th><th>
<p>Q3 2024</p>
</th><th>
<p>Q4 2024</p>
</th><th>
<p>Q1 2025</p>
</th><th>
<p>Q2 2025</p>
</th></tr><tr><td>
<p>Data center revenue growth (YOY)</p>
</td><td>
<p>115%</p>
</td><td>
<p>122%</p>
</td><td>
<p>69%</p>
</td><td>
<p>57%</p>
</td><td>
<p>14%</p>
</td></tr><tr><td>
<p>As a percentage of total revenue</p>
</td><td>
<p>48%</p>
</td><td>
<p>51%</p>
</td><td>
<p>51%</p>
</td><td>
<p>50%</p>
</td><td>
<p>42%</p>
</td></tr><tr><td>
<p>Total revenue growth (YOY)</p>
</td><td>
<p>9%</p>
</td><td>
<p>18%</p>
</td><td>
<p>24%</p>
</td><td>
<p>36%</p>
</td><td>
<p>32%</p>
</td></tr></tbody></table></div>
<p>Data source: AMD. YOY = Year-over-year.</p>
<p>That deceleration was caused by three major headwinds.</p>
<p>First, the Trump administration barred it from exporting its MI308 GPUs to China. Second, it faced intense competition from Nvidia's new H200 chips. Nvidia also reinforces its lead by locking its customers into its proprietary CUDA (Compute Unified Device Architecture) platform for writing GPU applications.</p>
<p>Lastly, AMD expects its sales of current-gen MI300X chips to cool off as it ramps up its production of its next-gen MI350 chips throughout the second half of 2025. Many of its potential customers won't buy its older chips when a newer version is right around the corner.</p><div class="flex justify-center"></div>
<h2>Don't ignore its potential catalysts</h2>
<p>AMD's slowdown in the data center market was disappointing, but it's offsetting that pressure by selling more EPYC CPUs for servers, Ryzen CPUs for PCs, and Radeon GPUs for PCs. It's also still gaining ground against the struggling <strong>Intel</strong> <span class="ticker-mention inline-flex items-center font-bold">(INTC <span class="ml-1 text-green-900">+3.36%</span>)</span> in the x86 CPU market.</p>
<p>AMD recently secured massive AI deals with <strong>Oracle</strong> <span class="ticker-mention inline-flex items-center font-bold">(ORCL <span class="ml-1 text-green-900">+2.72%</span>)</span> and OpenAI. Oracle plans to install 50,000 AMD GPUs across its cloud infrastructure platform. OpenAI aims to deploy up to 6 gigawatts of AMD's CPUs in its data centers over the next few years, and it even acquired stock warrants that could eventually give it a 10% stake in the chipmaker. Those deals strongly indicate that Oracle and OpenAI are eager to curb their dependence on Nvidia.</p>
<p>If other AI giants follow that lead, Nvidia could gradually lose its edge against AMD. While AMD's Instinct chips aren't as powerful as Nvidia's Blackwell GPUs, they can be optimized to handle certain memory-intensive tasks more efficiently. Therefore, more companies might be willing to tweak their data centers to accommodate AMD's GPUs, instead of getting locked into Nvidia's prisoner-taking ecosystem of CUDA-optimized applications.</p>
<h2>Could AMD become the next growth story in AI chips?</h2>
<p>From 2024 to 2027, analysts expect AMD's revenue and earnings per share (EPS) to increase at a CAGR of 30% and 86%, respectively, as it overcomes its near-term challenges. Its stock isn't a bargain at 57 times next year's earnings, but the growth potential of its AI business justifies that higher valuation.</p><div class="flex justify-center"></div>
<p>While AMD won't ever dethrone Nvidia as the top AI chipmaker, there could be plenty of room for both companies to thrive without trampling each other. So if AMD continues to expand its defensible niche of the AI market, it could certainly become the next big growth story in AI chips.</p><div id="article_pitch_container" class="pitch-container"></div><div id="promobox_container" class="pitch-container"></div>

OpenAI

ORCL

AMDL

<p>Advanced Micro Devices (AMD) is positioning itself as a potential growth story in the AI chip market, challenging Nvidia's dominance. While Nvidia controls 94% of the discrete GPU market, AMD has launched competitive products like the MI300X, which outperforms older Nvidia models at a lower price. Despite recent revenue slowdowns due to export restrictions and competition, AMD is securing significant deals with Oracle and OpenAI, indicating a shift in the AI landscape. Analysts project AMD's revenue and earnings per share to grow significantly from 2024 to 2027, supporting its higher valuation despite current challenges.</p>

- Nvidia is the leading producer of discrete GPUs for AI tasks, holding 94% of the market, while AMD has been gradually increasing its presence with new data center GPUs.  
- AMD's recent MI300X GPUs have shown competitive performance against Nvidia's H100, and the company has secured significant deals with Oracle and OpenAI, indicating a shift in AI chip preferences.  
- Analysts project AMD's revenue and earnings per share to grow significantly from 2024 to 2027, suggesting potential for AMD to carve out a substantial niche in the AI chip market alongside Nvidia.

Could Advanced Micro Devices Become the New Growth Story in AI Chips?