Nvidia vs AMD: Which AI Chipmaker Will Lead the Next Decade of Compute?

Nvidia (NASDAQ: NVDA) has been the "go-to" source for artificial intelligence (AI) chips since the start of the AI boom, and this is thanks to two things: the company's first-to-market advantage and the strong performance of its chips. All of this has generated enormous earnings growth, with revenue and profit reaching record levels, and mind-boggling share price gains -- the stock has advanced more than 900% over three years.

But Nvidia isn't alone in the exciting AI space. It faces competition from other chip designers such as Broadcom and even some of its own customers that have developed their own chips, like Amazon, for example. But one name in particular represents perhaps the biggest threat to Nvidia's dominance, and that's Advanced Micro Devices (NASDAQ: AMD), a company that's been quickly advancing with new high-powered chips and attractive pricing. And the coming years could represent a crucial moment for chip companies, as Nvidia predicts AI infrastructure spending may reach as much as $4 trillion.

Which of these two AI chip designers will lead the next decade of compute? Let's find out.

Image source: Getty Images.

Nvidia's path to leadership

First, let's consider Nvidia's path to leadership and how it's managed to stay ahead of rivals so far. As mentioned, Nvidia entered the market first with its supercharged graphics processing units (GPUs), AI chips that power the most crucial of AI tasks from training to inferencing. This offered the company the opportunity to build relationships with customers, and for customers to be won over by the quality of Nvidia's products.

Nvidia maintained this leadership by continuing to innovate on a regular basis, and in recent years, it committed to annual updates to its top chips.

AMD made AI a focus with the launch of its Instinct line of accelerators back in 2017, and since then has added to GPU offerings, gaining in performance and therefore becoming a stronger rival for AI powerhouse Nvidia.

In the most recent earnings report, the company delivered a 36% increase in revenue to a record level of $9.2 billion, and chief executive officer Lisa Su said quarterly performance and guidance for the next quarter marked "a clear step up in our growth trajectory." Demand from data center customers for the company's EPYC processors and Instinct AI accelerators drove gains in the period.

AMD and OpenAI

It's also important to note that AMD recently signed a deal with OpenAI for the deployment of six gigawatts of AMD GPUs, with the first gigawatt set to roll out in the second half of next year. (OpenAI also has a deal with Nvidia for the deployment of 10 gigawatts of Nvidia GPUs.)

Though AMD has come a long way in a short period of time and surely will continue to gain many orders for its GPUs, I don't see the company unseating Nvidia and driving compute in the coming decade. And here's why: Nvidia truly has built out a massive ecosystem within the world of AI, offering everything needed to do the AI job, from GPUs to high-performance networking equipment and software, as well as platforms for specific industries like autonomous vehicles, healthcare, and robotics. And within those industry platforms, Nvidia's built tools designed to help customers reach their goals.

Though AMD also offers a significant array of products and services, it's not as far-reaching as that of its bigger competitor.

Leading the next decade of AI

All of this makes Nvidia better positioned to lead the next decade of compute -- but this doesn't mean AMD won't benefit from the upcoming phases of AI growth. AMD's chips and systems are powerful, pricing is competitive, and the company has seen demand take off in recent quarters. Major chip customers, like Amazon, just to name one, buy GPUs from a variety of chip designers -- not just from Nvidia. In its recent earnings call, Amazon chief Andy Jassy said Amazon Web Services continues "to work closely with chip partners like Nvidia, with whom we continue to order very significant amounts as well as with AMD and Intel."

All of this means that AMD may have plenty of very of bright days ahead, but considering the empire Nvidia has carefully built over time and its commitment to innovation, I expect this AI giant to keep powering the AI revolution.

Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Intel, and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.