Our 10 Best Semiconductor Stocks to Buy for the Next Decade weighs the ability to keep investing through technology changes. Nvidia and AMD illustrate why the size of a research budget matters less than the business supporting it. Which can absorb another spending increase without sacrificing much of today’s profit?
NVIDIA Corporation (NASDAQ:NVDA) spent $7.05 billion on research and development in its quarter ended July 26. Advanced Micro Devices, Inc. (NASDAQ:AMD) spent $2.53 billion in its quarter ended June 27.
Courtesy of NVIDIA
A larger budget can be a lighter burden
Research absorbed 7.3% of Nvidia’s $96.22 billion revenue and 21.9% of AMD’s $11.54 billion. Across their respective first halves, the proportions were 7.5% and 22.6%, so the difference extends beyond one quarter.
Nvidia’s advantage is scale: a much larger sales base supports more absolute development spending while leaving substantial operating profit. Its software and systems business can help distribute engineering costs across customers. That does not establish that each research dollar produces a better chip or a stronger investment return.
AMD’s higher burden also represents an opportunity. Successful processor and accelerator adoption could spread existing development expense over more revenue. Cutting research simply to improve the ratio could undermine that opportunity. Our margin-resilience comparison shows how differently the two current profit bases respond when pricing pressure arrives instead.
What another 20% would cost
Hold revenue and every other cost fixed, then increase quarterly research spending 20%. Nvidia would absorb another $1.41 billion, reducing its $63.73 billion operating income by 2.2%. AMD would absorb $506 million, reducing its $1.99 billion operating income by 25.4%. This is an expense sensitivity, not guidance: successful research can create future revenue, and actual expenses would not all stay fixed.
At unchanged research spending, AMD would need revenue of $16.85 billion to reduce its research burden to 15%, about 46% above the latest quarter.
Research capacity is not a stock-price verdict
At October 16 equity values, trailing operating cash less capital expenditure cost about 41 times for Nvidia and 103 times for AMD. Neither spending capacity nor a high research ratio settles whether those prices are justified. Our Nvidia-Broadcom investment comparison examines how a different AI-chip business model changes the growth-versus-price decision.
Q2 2026 hedge-fund holders rose to 285 from 275 for Nvidia and to 164 from 134 for AMD. Fisher increased Nvidia shares 3%, while Marshall Wace increased AMD shares 3%. AMD’s September 30 short interest was 2.42% of float.
Nvidia has more demonstrated capacity to finance a higher research bill. AMD offers more potential operating leverage if adoption expands without equally fast expense growth. Investors should watch research spending alongside revenue and cash conversion; rising expenditure alone proves neither innovation leadership nor waste.
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