The artificial intelligence (AI) sector experienced explosive growth in recent years, with AI stocks fueling impressive gains in the stock market, particularly within the Nasdaq. This momentum carried into early 2025 before a recent cooling trend began to affect these high-performing stocks. Concerns about the broader economy, compounded by uncertainties about the impact of potential tariffs, have dampened investor enthusiasm, especially for high-growth tech companies.
This correction has pushed the Nasdaq Composite (^IXIC) into a downturn, with the index dropping significantly from its recent peak. However, seasoned investors are aware that market dips often create opportunities. The recent declines in major AI players, including Nvidia and Advanced Micro Devices (AMD), present a potential buying opportunity for those focused on long-term growth. The current economic uncertainties may pose short-term challenges; however, the long-term outlook for AI remains exceptionally positive.
The AI market, valued at $200 billion today, is projected to surge past $1 trillion by the end of the decade. This anticipated growth could lead to significant gains for companies at the forefront of AI development and implementation. Two key players with significant potential for long-term growth are Nvidia (NVDA) and Advanced Micro Devices (AMD).
The Case for Nvidia
Nvidia is the dominant force in the AI chip market. Its graphics processing units (GPUs), while premium-priced, deliver exceptional performance, attracting major tech companies. The demand for Nvidia’s latest Blackwell architecture has outstripped supply. As a result, the company has demonstrated robust financial growth throughout the AI boom, regularly reporting double- or triple-digit revenue increases. Their most recent quarterly revenue hit a record $39 billion, a 78% jump, contributing to a 114% annual revenue increase, totaling $130 billion.
Some investors have expressed concerns that Nvidia’s high prices could eventually hinder growth, especially as competitors develop more advanced products. However, Nvidia’s commitment to annual GPU updates could make it difficult for competitors to gain a significant market share. This could mean Nvidia, trading at 25x forward earnings estimates, down from 50x earlier in the year, is a good value for long-term investors.
The Case for AMD
AMD holds the second-largest position in the AI chip market. Though its market share (approximately 10%) is smaller than Nvidia’s, AMD has still demonstrated impressive growth in this sector. AMD’s GPUs are made to handle AI workloads, and they’re noted for their solid performance at a reasonable price point. This combination makes AMD an appealing option for cost-conscious customers, which could boost orders as demand for AI chips rises. In fact, major tech companies, including Microsoft, use AMD’s GPUs. For instance, Microsoft utilizes AMD’s MI300X GPUs to power some of its GPT-4-based Copilot services. Following Nvidia’s annual innovation strategy, AMD is also aiming to keep up by introducing similar annual updates. While Nvidia is likely to stay ahead, AMD’s strategy could generate substantial growth. AMD’s data center revenue surged by 69% in the fourth quarter to a record $3.9 billion, and for the year, revenue soared by 94% to a record $12.6 billion. With a valuation now at 21x forward earnings estimates (compared to over 27x in January), AMD also offers an attractive buying opportunity.
Nvidia or AMD?
Both Nvidia and AMD are sound investments for an AI-focused portfolio. However, if you could only buy one during the current market correction, Nvidia is the stronger choice. Nvidia’s market dominance and focus on ongoing innovation signal long-term leadership. This should translate into continued earnings growth, and the recent valuation drop makes it an opportune time to invest in this AI industry leader.
