Nvidia (NASDAQ:NVDA) may still be the undisputed 800-pound gorilla of artificial intelligence chips. But Advanced Micro Devices (NASDAQ:AMD) is looking like it could be a formidable threat. In fact, AMD is coming for Nvidia’s crown.

AMD shares rose about 7% Thursday after the semiconductor powerhouse, run by Dr. Lisa Su, launched its MI300X chip, which analysts think could be a formidable competitor to Nvidia’s H100 graphics processing unit and Nvidia’s upcoming H200, which will be released in mid-2024.

AMD unveiled an impressive roster of big tech companies that have deals to use its new AI chips, including Microsoft (NASDAQ:MSFT), Meta Platforms (NASDAQ:META), Oracle (NYSE:ORCL), Dell Technologies (NYSE:DELL) and Hewlett Packard Enterprise (NYSE:HPE).

Nvidia investors took the AMD news in stride though. Shares of the trillion-dollar tech were up about 1.7% Thursday. Still, investors shouldn’t count out AMD.

Will AMD Stock Win the AI Chip War?

AMD, under Su’s leadership, has grown rapidly over the past few years and now has a market valuation of nearly $200 billion, more than archrival Intel (NASDAQ:INTC).

To be sure, AMD is not a cheap stock. It trades at about 36 times 2024 earnings forecasts following a nearly 90% surge this year. But AMD actually trades at a slight discount to Nvidia’s P/E of more than 40 times fiscal 2024 earnings projections. And AMD arguably deserves its lofty valuation given that analysts are predicting that earnings will grow 40% in 2024. That follows average annual earnings increases of nearly 65% over the past five years.

It’s growing increasingly clear that the battle for AI supremacy, whether it is in semiconductors or with chatbots, is far from over. Competition is going to remain intense and there likely could be several winners.

Just look at how shares of Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) surged Thursday thanks to high hopes for its new Gemini AI model, which will power Alphabet’s Bard chatbot.

Still, investors also must be aware of the fact that the widely hyped AI business is in its infancy. There are going to be growing pains.

Artificial intelligence software company C3.ai (NYSE:AI), for example, reported a sales miss and weak guidance after the closing bell Wednesday. The stock, which has more than doubled in 2023, tumbled 11% on the news Thursday.

The Bottom Line

But for many traders, the promise of AI will prove to be too lucrative to resist. That’s why investing in a company like AMD, which also has many revenue streams outside of AI thanks to chips for desktop PCs, laptops, servers, and gaming devices, might be a safer way to play AI.

And make no mistake, AMD will likely get a big piece of the rapidly growing AI market. AMD’s CEO said Wednesday that she estimates the addressable market for its AI processors this year is now $45 billion… up from an earlier forecast of $30 billion.

As of this writing, Paul R. La Monica did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.