AMD vs. Arista Networks: Which Artificial Intelligence (AI) Stock Is a Better Buy Right Now?

Despite similar valuations, one looks more attractive for long-term investors

While Nvidia gets all the attention among companies viding chips and equipment to AI data centers, there are dozens of others benefiting from the soaring spending from the industry's hyperscalers

But if you can buy only one of them, AMD is the stock to own right now

Both companies are executing well with strong demand for their ducts and a huge runway as AI spending takes off

But AMD's stock looks more attractive for multiple reasons

Here's what investors need to know

Image source: Getty Images

So, even if management's estimates turn out to be too high and it captures just a tiny sr of that market, there's still a lot of growth ahead for the

And AMD is positioned to capture a good portion of that market

It also said the rack-scale MI400 will come out next year, which will compete with Nvidia's Rubin line, scheduled to come out in the second half of 2026

With imved relative performance, AMD's position as an alternative to Nvidia for hyperscalers is strengthening

Its unly to overtake the market leader, but it's important for companies building out new data centers to have an alternative if there are supply shortages and to prevent overdependence on one supplier

AMD's strong position in data center CPUs could also make it a staple for years to come

It's consistently taking in the market, which vides a steady and growing base for its data center

But that also means that this revenue bably won't outpace Nvidia's growth until GPUs become the main source of revenue for the segment

S of AMD currently trade for 37 times forward earnings estimates

That looks expensive at first blush, but earnings will be weighed down by charges related to Chinese export controls

Arista: the market leader in data center networking Arista makes network switches that can scale up to huge AI accelerator clusters while maintaining high data-transfer speeds

When it comes to AI training, ensuring that data can get from one server to another is of the utmost importance, as any level of latency is magnified exponentially as clusters and AI models grow bigger

The company's equipment helps ensure limited downtime for the expensive AI accelerator chips lining the server racks of AI data centers

The combination of high-end hardware and its extensible operating system (EOS) gives Arista a key competitive advantage

EOS makes it easier for data center operators to get the most out of their equipment with AI-focused features the newly released cluster load balancing -- in which a cluster of servers maximize performance by distributing incoming traffic among themselves to avoid overwhelming any one server

Nvidia is starting to encroach on Arista's market, however, with the introduction of its Spectrum-X networking platform

The system is designed to work with its GPU clusters, taking advantage of Nvidia's dominant position in the chip market

But Arista's modular and grammable system is much more flexible, and the switching costs of overhauling entire data centers are significant

As such, it's hard to see the company losing its top position in networking equipment, especially as AI accelerator purchases evolve

With most of that growth coming from its biggest customers, investors shouldn't expect strong gross margin expansion

Meanwhile, the company may have to spend heavily on marketing, along with re and development, to fend off competition from the s of Nvidia, which may limit operating leverage

That said, Arista's fit margins are already relatively high

With the stock trading for 37 times forward earnings expectations, that makes it just as expensive as AMD

As such, the price looks much more expensive for what you get compared to AMD, and it's worth waiting for the stock to come down before

So, investors looking to invest in one of the top AI stocks not named Nvidia could do well with one of its closest competitors, AMD

Adam Levy has no position in any of the stocks mentioned

The Motley Fool has positions in and recommends Advanced Micro Devices, Arista Networks, and Nvidia

The Motley Fool has a disclosure policy.