Advanced Micro Devices Inc. AMD could emerge as a more attractive investment option compared to Nvidia Corp. NVDA as the artificial intelligence chip market evolves, according to a new analysis from Trefis Team released Wednesday.

What Happened: While Nvidia has dominated the AI chip market with its stock surging 180% this year to reach a market capitalization of $3.5 trillion, its premium valuation of 48 times projected fiscal 2025 earnings could limit future gains. AMD, trading at a more modest 28 times forward earnings, offers investors exposure to AI growth at a more reasonable entry point.

The analysis highlights several factors potentially working in AMD’s favor. A key shift is occurring in the AI market from model training to inference – the process of generating outputs from trained models. AMD’s MI300X chip has demonstrated strong performance in inference tasks, competing effectively with Nvidia’s H100 GPU according to MLCommons benchmark testing.

This competitive position is translating into significant business opportunities. IBM IBM recently announced plans to offer AMD’s MI300X AI processors on its cloud services in the first half of 2025, signaling growing market acceptance.

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Why It Matters: Cost considerations are also becoming increasingly important for customers. With Nvidia’s GPUs priced above $25,000 each, companies are seeking more affordable alternatives. Oracle Corp‘s ORCL recent selection of AMD chips for its AI supercluster, citing strong performance at competitive prices, exemplifies this trend.

AMD’s financial performance supports the positive outlook. The company’s data center segment reported $3.5 billion in third-quarter sales, marking a 118% increase year-over-year.

“While the AI revolution is possibly just getting started, investors will need to pick the right winners to continue profiting from this trend,” noted the Trefis analysis. “Specifically, we think it might be time to reconsider Nvidia stock and look closely at AMD.”

The stock has shown significant volatility, with annual returns ranging from -55% in 2022 to 128% in 2023, but has delivered overall gains of 1,112% since 2017, substantially outperforming the S&P 500’s 167% return over the same period.

Trefis’s High-Quality portfolio, comprising 30 stocks, has outperformed the S&P 500, growing a $100,000 investment to over $190,000 since its launch in September 2020.

According to Benzinga Pro data, AMD has a consensus price target of $195.77, with the highest target at $265 and the lowest at $145. Recent analyst ratings from Benchmark, Citigroup, and TD Cowen suggest an almost 43% upside from the current price.

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.