As the artificial intelligence (AI) revolution continues to gain steam, chipmakers Advanced Micro Devices (AMD 1.72%) and Qualcomm (QCOM 2.06%) have experienced widely differing fortunes on the stock market in 2024 so far. While one is outperforming the PHLX Semiconductor Sector index nicely, the other one is lagging.

More specifically, Qualcomm stock is up 45% so far this year, which is well above the 28% gains for the PHLX Semiconductor Sector index, as investors are taking note of the company's robust position in the AI chip niche. AMD, meanwhile, gained just 9% in 2024 despite starting the year on a positive note, as its business isn't getting as strong a boost from AI as Wall Street analysts were anticipating.

Does this mean that Qualcomm is the better AI stock of the two to buy now? Or will AMD's recent product development moves help it land a significantly bigger share of the lucrative AI chip market and turn its fortunes around?

The case for AMD

The market for chips used in AI servers is growing rapidly, but AMD came late to the party. Nvidia is running away with this market with an estimated share of 90%. This explains why Nvidia's data center revenue in the first quarter stood at $22.6 billion, up a whopping 427% year over year.

AMD generated just $2.3 billion in revenue from data center chips in the quarter, though it is worth noting that this was up 80% from the year-ago period. AMD credited this impressive growth to increased sales of its Instinct line of data center graphics cards, which are targeted at AI workloads.

Also, when it released its Q1 numbers in April, AMD increased its 2024 forecast for AI-related data center graphics processing unit (GPU) revenue to $4 billion, up from the earlier estimate of $3.5 billion it issued in January. Three months prior to that, AMD was forecasting its 2024 data center GPU revenue would land at $2 billion. So, the company has doubled its revenue expectations from this market in the space of just six months.

However, it looks like investors were expecting even bigger numbers from AMD. That's not surprising, as it's trading at 12 times sales right now, which is higher than the U.S. tech sector's average price-to-sales ratio of 7.6. The chipmaker's revenue forecast of $5.7 billion for the second quarter would amount to a year-over-year increase of just 6%, which isn't good enough to justify its rich valuation.

But then, it won't be surprising to see AMD raising its AI revenue guidance further as the year progresses. The company stands to gain from the increasing AI chip manufacturing capacity of its foundry partner. Additionally, AMD is looking to grab a bigger share of the AI chip market by launching new chips.

The company recently unveiled its MI325X data center GPU, which it says is 30% more powerful than rival Nvidia's flagship Hopper architecture-based H200 chip. Also, AMD has now decided to launch a new family of AI accelerators every year so that it can become more competitive.

At the same time, the growing adoption of AI-enabled personal computers (PCs) is now driving solid growth in another of AMD's key business segments. Its revenue from the client segment, which includes sales of central processing units (CPUs) used in desktops and laptops, increased a solid 85% year over year to $1.4 billion in the first quarter.

AMD management points out that it will have a huge range of AI-enabled PCs powered by its processors by the end of the year. This should allow the company to capitalize on a lucrative growth opportunity; AI-enabled PCs are expected to account for 60% of PCs shipped by 2027 as compared to 19% this year, according to market research firm Statista.

All this indicates that there is a good chance that AMD's AI-related business will pick up, which is probably the reason why analysts are expecting its top line to jump 28% in 2025 following a forecast gain of 13% in 2024. So, the possibility of AMD's fortunes turning around thanks to AI cannot be ruled out.

The case for Qualcomm

Qualcomm, too, is sitting on a secular growth opportunity -- in its case, thanks to AI in the smartphone market. Smartphone sales declined last year amid weak demand, but the advent of AI-enabled smartphones is expected to set off a turnaround in this market, with IDC forecasting growth of 4% this year.

Counterpoint Research estimates that 100 million AI smartphones could be shipped this year. Even better, generative AI smartphone shipments are expected to see an annualized growth rate of 83% through 2027, when they would hit 522 million units in shipments. The good part is that Qualcomm has already started capitalizing on this space. Its Snapdragon processors are powering on-device AI capabilities in Samsung's flagship Galaxy smartphones.

Additionally, Qualcomm's revenue from Chinese smartphone manufacturers increased 40% year over year in the first half of 2024. More importantly, Qualcomm is pushing the envelope in the AI smartphone market by launching more chips that will allow it to expand beyond top-tier smartphones and target the mid-range smartphone market as well. Not surprisingly, Counterpoint Research expects Qualcomm to dominate the market for AI smartphone chips with a market share of more than 80% over the next couple of years.

At the same time, Qualcomm has set its sights on the AI PC market. During its May earnings conference call, CFO Akash Palkhiwala said that all the leading PC manufacturers are going to launch "next-generation AI PCs powered by our Snapdragon X Elite and X Plus platforms" starting in mid-2024. Microsoft already announced PCs powered by Qualcomm chips. As a result, there is a good chance that Qualcomm's growth is set to accelerate.

The company's revenue in the second quarter of its fiscal 2024 (which ended on March 24) was almost flat year over year at $9.4 billion. Analysts, however, are expecting the company to finish its fiscal year with a 7.2% increase in revenue to $38.4 billion. In fiscal 2025, Qualcomm's top line is forecast to jump by just over 10% to $42.3 billion.

Those estimates, however, could be revised higher once the adoption of AI-enabled smartphones and PCs starts gaining critical mass, suggesting that Qualcomm could remain a top AI stock in the future.

The verdict

Both AMD and Qualcomm are on track to take advantage of lucrative AI niches. But while AMD is struggling to gain market share against its bigger rival in chips for AI servers, Qualcomm is the dominant player in the smartphone chip market.

Also, AMD's steep sales multiple of 12 and trailing earnings multiple of 230 make the stock an expensive investment right now with respect to the growth that it has been delivering. Its forward earnings multiple of 49 is also quite rich.

Qualcomm, on the other hand, trades at just 6.4 times sales. It has a trailing earnings multiple of 27, and its forward earnings multiple of 18 points toward the expectation of a nice jump in its bottom line. So investors looking to add an AI stock to their portfolios may be tempted to buy Qualcomm over AMD, given that it is way cheaper and enjoys a dominant position in the fast-growing AI smartphone space.