That cannot be denied Nvidia sells the most powerful artificial intelligence (AI) chips today and dominates the market with an 80% share. And the stock represents a solid long-term investment opportunity, even though it’s up triple digits over the past year. But that doesn’t mean it’s the best AI buy right now.
In fact, one of Nvidia’s rivals – a player that has fallen behind in the AI competition – actually represents a more pressing buying opportunity today, as it may be ripe for a major turnaround and long-term growth. I’m talking about chipmaker Intel (NASDAQ:INTC), which recently made two moves that could be game-changing for the company. Learn more about this straightforward AI stock to buy now.
A $1 trillion market
First, it’s important to note that I don’t expect Intel to displace Nvidia in the graphics processing unit (GPU) market. But the good news is that Intel doesn’t have to do that to succeed in this market and advance AI. Analysts expect the AI market to surpass $1 trillion by the end of the decade, and today the three standout chip designers are Nvidia, modern micro devicesand Intel.
Given the size of the market and the fact that AI could play a role in nearly every industry from healthcare to automotive, chip demand could be high enough to drive revenue growth for all three of these players.
Although Intel is the global leader in the market for central processing units (CPUs), chips that support a wide range of computing operations, the company has fallen behind in the GPU space. GPUs are known for handling a variety of tasks at once, and were originally used to power video games and graphics applications. They still do, but today the GPU’s biggest business is powering AI.
Now let’s talk about Intel’s two smart moves. Late last year, Intel announced a new portfolio of exciting AI products, including the Intel Core Ultra mobile processor family – a product that innovates in everything from computing power to graphics to battery life. The company says Intel Core Ultra ushers in the era of the AI personal computer, an extremely powerful computer that can handle AI tasks. The company sees this as the biggest change in the world of PCs since laptops first connected to Wi-Fi 25 years ago.
The latest Xeon processor
The chip giant also announced the latest Xeon processor family that boosts AI performance and announced the launch of the Gaudi 3 AI accelerator for deep learning and large-scale generative AI in 2024. Intel predicted that the company expects to increase its share of the accelerator market this year due to growing demand in this area.
Second, Intel is making a bet that of course comes with a fair amount of risk, but if Intel is successful, it could make a big profit. The company is opening its manufacturing network to others and aims to become the second largest foundry in the world by 2030. Many companies like Nvidia design chips but don’t make them themselves, turning to foundries instead. Today it is the world’s largest manufacturer Taiwan Semiconductor Manufacturing Co.
Intel already has expertise in this area and has been making its own chips for a long time. Now the company will sell those manufacturing services to others. The company said it started with one customer for its 18A process last year, but won three more and five advanced packaging contracts by year’s end. To produce its own chips, Intel – like other chip designers – becomes a customer of its foundry.
US government support for Intel
The U.S. government supports Intel’s initiative because it would reduce U.S. dependence on foreign manufacturers – and the administration recently proposed up to $8.5 billion in direct funding for Intel’s semiconductor manufacturing projects in four states. Still, the project represents a huge investment for Intel, with the company pledging to invest $100 billion in U.S. chipmaking capacity over five years.
Now let’s look at Intel’s valuation. The stock trades at 27 times expected earnings, a reasonable price considering analysts expect double-digit annual growth over the next five years. If Intel wins its bets on AI and manufacturing, revenue growth could really pick up over time. For this reason, Intel is currently a clear buy for the long-term AI growth investor.
Should you invest $1,000 in Intel now?
Before you buy Intel stock, consider the following:
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. 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.
Forget Nvidia: This stock is a no-brainer. Artificial Intelligence (AI) Buy Now was originally published by The Motley Fool