A boom in artificial intelligence (AI) shook up the tech world last year. The launch of OpenAI’s ChatGPT reignited interest in the technology and highlighted just how far AI had come. As a result, countless companies have pivoted their businesses to the budding sector in an effort to take their slice of a $200 billion pie.
According to Grand View Research, the AI market is expected to expand at a compound annual growth rate of 37% until at least 2030, which would see it achieve a valuation nearing $2 trillion by the end of the decade.
Consequently, it’s not too late to invest in AI, and chip stocks are some of the most attractive options. These companies are developing the hardware necessary to train and run AI models, suggesting they’ll be well positioned to profit from the AI market’s tailwinds for years.
As leading chipmakers, Nvidia (NASDAQ: NVDA) and Intel (NASDAQ: INTC) have significant potential in AI. However, these companies are at drastically different stages in their AI journeys, which could mean one has more room to run over the long term.
So, let’s examine these chipmakers more closely and determine whether Nvidia or Intel is the better AI stock right now.
Nvidia
Nvidia’s business has exploded over the last year. Its stock is up 230% since last April. Meanwhile, its quarterly revenue and operating income have spiked 207% and 536%, respectively, thanks to soaring chip sales.
In 2023, Nvidia cornered the market on AI graphics processing units (GPUs) while many of its competitors scrambled to catch up. Nvidia’s head start allowed it to take full advantage of the increased demand for AI GPUs, capturing an estimated 90% market share.
Nvidia’s meteoric rise has some analysts questioning how much room the company has left to run. However, its stock keeps defying expectations, rising 60% in the last three months. Meanwhile, Nvidia’s free cash flow has increased by 430% in the last year to more than $27 billion, indicating it has the funds to continue investing in AI and retain its market supremacy.
Given the massive potential of AI and Nvidia’s position in the market, I wouldn’t bet against it over the long term.
Intel
Nvidia’s established role in AI has made it one of the more reliable options. However, it could be worth looking at a company like Intel, which isn’t as settled in the industry but could have more growth potential.
Intel has hit more than a few roadblocks in recent years. Its stock is down about 45% over the past three years after seeing decreased market share in central processing units (CPUs) and ending a more than decade-long partnership with Apple.
However, Intel is making major changes to its business, which could see it come back strong in the coming years. Last June, Intel announced a “fundamental shift” to its business, adopting an internal foundry model that it believes will help it save $10 billion by 2025.
Moreover, Intel is moving into AI. In December 2023, the company debuted a range of AI chips, including Gaudi3, a GPU designed to challenge similar offerings from Nvidia. Intel also showed off new Core Ultra processors and Xeon server chips, which include neural processing units for running AI programs more efficiently.
Intel is on the road to recovery, but it will take time for its financials to reflect recent changes. As a result, an investment in Intel is recommended for more patient investors who are willing to hold for at least a decade.
Is Nvidia or Intel the better AI stock?
This chart indicates Intel’s stock is trading at a significantly better value than Nvidia’s, with a far lower forward price-to-earnings (P/E) and price-to-sales (P/S) ratio.
Forward P/E is calculated by dividing a company’s current share price by its estimated earnings per share. Meanwhile, P/S divides its market cap by its trailing-12-month revenue. These are useful valuation metrics since they consider a company’s financial health. And for both, the lower the figure, the better the value.
As a result, Intel’s lower forward P/E and P/S suggest its stock is trading at a bargain compared to Nvidia’s. However, the question is which is the better AI stock, not which is the better value.
Consequently, the answer lies in the investor. If you’re looking to invest in an established AI company that will likely deliver consistent but potentially small gains over many years, Nvidia is the answer. However, if you’re willing to take a chance on Intel’s ability to turn things around and potentially reap major rewards for its efforts, it’s the AI stock to buy.
Should you invest $1,000 in Nvidia right now?
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Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
Better AI Stock: Nvidia vs. Intel was originally published by The Motley Fool