A boom in artificial intelligence (AI) rocked the tech world last year. OpenAI’s launch of ChatGPT has renewed interest in the technology and shown how far AI has advanced. As a result, countless companies have pivoted their businesses to the emerging sector to grab a piece of the $200 billion pie.
According to Grand View Research, the AI market is expected to grow at a compound annual growth rate of 37% through at least 2030, which would result in it reaching a value of nearly $2 trillion by the end of the decade.
Consequently, it is not too late to invest in AI, and chip stocks are among the most attractive options. These companies are developing the hardware needed to train and run AI models, suggesting they are well-positioned to benefit from AI market tailwinds for years to come.
As leading chip manufacturers Nvidia (NASDAQ:NVDA) And Intel (NASDAQ:INTC) have significant potential in AI. However, these companies are at completely different stages of their AI journey, which could mean there is more room for maneuver in the long term.
So let’s take a closer look at these chipmakers and determine whether Nvidia or Intel is the better AI stock right now.
Nvidia
Nvidia’s business has exploded in the last year. The stock is up 230% since last April. Meanwhile, quarterly revenue and operating income rose 207% and 536%, respectively, thanks to soaring chip sales.
In 2023, Nvidia captured the AI graphics processing unit (GPU) market while many of its competitors struggled to catch up. Nvidia’s lead allowed the company to take full advantage of increased demand for AI GPUs and capture an estimated 90% market share.
Nvidia’s meteoric rise has some analysts wondering how much room the company has left. However, the stock continued to beat expectations, rising 60% in the last three months. Meanwhile, Nvidia’s free cash flow has increased rose 430% last year to over $27 billion, This suggests that the company has the wherewithal to continue investing in AI and maintain its market leadership.
Given the huge potential of AI and Nvidia’s market position, I wouldn’t bet against it in the long term.
Intel
Nvidia’s established role in AI has made it one of the more reliable options. However, it might be worth taking a look at a company like Intel, which isn’t as established in the industry but could have more growth potential.
Intel has encountered more than a few hurdles in recent years. Its stock has fallen about 45% over the past three years following a decline in central processing unit (CPU) market share and the end of a more than decade-long partnership with the company Apple.
However, Intel is making big changes to its business that could help it thrive in the coming years. Last June, Intel announced a “fundamental shift” in its business, introducing an internal foundry model that it believes will help it save $10 billion by 2025.
Additionally, Intel is getting into AI. In December 2023, the company unveiled a range of AI chips, including Gaudi3, a GPU designed to challenge similar offerings from Nvidia. Intel also introduced new Core Ultra processors and Xeon server chips that feature neural processing units to run AI programs more efficiently.
Intel is on the road to recovery, but it will take time for its financials to reflect recent changes. Therefore, investing 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 shows that Intel’s stock is trading at significantly better value than Nvidia’s, with a much lower forward price-to-earnings (P/E) and price-to-sales (P/E) ratios.
The forward P/E ratio is calculated by dividing a company’s current stock price by its estimated earnings per share. Meanwhile, P/S divides its market cap by its revenue over the last 12 months. These are useful valuation metrics because they take into account a company’s financial health. And for both: the lower the value, the better.
As a result, Intel’s lower price-to-earnings and forward-to-earnings ratios suggest that the stock is trading more cheaply compared to Nvidia. However, the question is which is the better AI stock, not which offers better value.
Consequently, the answer lies with the investor. If you want to invest in an established AI company that is likely to make consistent but potentially small profits over many years, Nvidia is the answer. However, if you’re ready to take advantage of Intel’s ability to change things and potentially reap big rewards for its efforts, consider buying the AI stock.
Should you invest $1,000 in Nvidia now?
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Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in Nvidia and recommends it. The Motley Fool recommends Intel and recommends the following options: long January 2023 calls for $57.50 on Intel, long January 2025 calls for $45 on Intel, and short May 2024 calls for $47 on Intel. The Motley Fool has a disclosure policy.
Better AI Stock: Nvidia vs. Intel was originally published by The Motley Fool