Better AI Buy in the Nasdaq Correction: Nvidia vs. AMD

Artificial intelligence (AI) stocks scored massive wins for investors last year and led the Nasdaq to a double-digit gain. This momentum continued into the early days of 2025, but in recent weeks, these once top-performing stocks have struggled.

Investors' concerns about the economy and the potential impact of President Donald Trump's tariffs on imports from Canada, China, and Mexico have weighed on stocks -- especially those of high-growth companies. All of this has driven the Nasdaq Composite (NASDAQINDEX: ^IXIC) into correction territory. Last week, the index fell more than 10% from its latest peak in December.

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But savvy investors know that in these tough times, bargains are multiplying. Declines in the major names in AI mean some are a steal right now -- and that signals an excellent buying opportunity.

It's important to remember that uncertainty about the economy may be a problem today, but it doesn't change the overall positive long-term outlook for AI. Today's $200 billion AI market is forecast to reach beyond $1 trillion by the end of the decade, and this could generate explosive growth for certain AI companies.

Two winning companies that likely have more to gain down the road are Nvidia (NASDAQ: NVDA) and Advanced Micro Devices (NASDAQ: AMD). These AI chip giants each saw their valuations sink in recent times and have fallen into bargain territory. Which is the better buy in the Nasdaq correction?

Image source: Getty Images.

The case for Nvidia

Nvidia dominates the AI chip market, holding an 80% share. The company's graphics processing units (GPUs) may be the most expensive around but also offer the highest performance -- something that has kept the world's biggest tech companies flocking to Nvidia. For example, demand for the tech giant's latest release, the Blackwell architecture, exceeded supply.

All of this has translated into solid growth for Nvidia throughout this AI boom. Quarter after quarter, the company has generated double-digit or triple-digit revenue growth, and revenue has reached record levels. In the most recent period, quarterly revenue rose 78% to a record of $39 billion, and full-year revenue soared 114% to a record $130 billion.

Some investors worry that the high price of Nvidia's GPUs could put the brakes on growth at a certain point, especially as rivals develop better and better products. But Nvidia's focus on innovation, with a pledge to update its GPUs annually, could make it very difficult for competitors to gain significant market share.

Considering all of this, Nvidia, trading for 25x forward earnings estimates -- down from 50x earlier this year -- makes a dirt cheap buy for the long term investor.

The case for AMD

AMD is the second-biggest player in the AI chip market. However, with a market share of about 10%, its AI growth story hasn't been as explosive Nvidia's. The company makes GPUs to power AI workloads and is known for offering solid performance at a reasonable price. This is great because it gives cost-conscious customers a quality option, which could result in more and more orders as AI chip needs grow.

Even though big tech companies, such as Microsoft, flock to Nvidia for GPUs, they also are customers of AMD. Microsoft, for example, uses AMD's flagship MI300X GPUs to drive several GPT 4-based Copilot services.

AMD aims to keep up with Nvidia by also launching innovations on an annual basis. Even though Nvidia is likely to stay well ahead, AMD still could generate massive growth by applying this strategy.

AMD called last year "transformative" for the company as it progressed in the AI market. In the fourth quarter, the company's data center revenue surged 69% to a record $3.9 billion; for the year, it soared 94% to a record $12.6 billion.

Like Nvidia, AMD has seen its valuation tumble recently and offers an interesting buying opportunity. It now trades for 21x forward earnings estimates, down from more than 27x back in January.

Which one is the better buy?

As mentioned, both companies make excellent additions to an AI portfolio, but if I could only choose one to buy during this Nasdaq correction, I'd go for Nvidia. The company has a solid hold on its market position and a plan -- a focus on innovation -- to maintain this leadership over the long run. All of this should translate into many more years of earnings growth.

Considering Nvidia's recent drop in valuation, now looks like the perfect moment to get in on this AI winner that has what it takes to extend its winning ways well into the future.

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*Stock Advisor returns as of March 10, 2025

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.