Chip stocks have soared since last year along with the artificial intelligence (AI) boom. As an industry leader, Advanced Micro Devices' (NASDAQ: AMD) The stock has risen 28% since last June. S&P 500Shares of NVIDIA have risen 24% in the same period. The company has been drawing investors to its promising role in graphics processing units, or GPUs, the chips needed to train AI models.
But while AMD's stock price rally has benefited existing investors, it has also raised the barrier to entry for new investors.
This chart compares AMD's valuation with two other companies working on AI, using price-to-sales and forward price-to-earnings multiples. Intel (Nasdaq: INTC) and Amazon (Nasdaq: AMZN)On both metrics, Intel and Amazon are more valuable than AMD, so while AMD likely has a bright future in AI in the long term, it may be worth investing in alternative, more cost-effective AI stocks.
So, forget about AMD and consider buying one of these artificial intelligence stocks instead.
1. Intel
You might be surprised to see Intel on this list, given how it's performed over the past decade: The company is coming off a slump that has seen its stock price plummet 47% since 2021, its revenues fall and it has lost market share in its once-major market for central processing units (CPUs).
But the recent restructuring suggests it's not over for Intel yet, and the company may be on the road to recovery. Meanwhile, the company's shares are one of the best bargains in the AI space right now, making it hard to ignore as a long-term pick.
Intel is preparing to invest $100 billion to build chip manufacturing plants across the U.S. The company has secured nearly $20 billion in federal grants and loans and is hoping to secure another $25 billion in tax breaks. The chipmaker is being backed in part by the federal CHIPS Act, a 2022 effort to boost U.S. foundry capacity.
Intel's manufacturing expansion is especially promising for the company's AI potential: CEO Pat Gelsinger expects its Ohio factory to become “the world's largest AI chip manufacturing hub” as soon as 2027. Meanwhile, prioritizing chip manufacturing is also helping Intel differentiate itself from rivals. NVIDIA Intel competes with AMD, which is focused on design rather than manufacturing, and as the growth of AI continues to drive demand for chips, Intel could see strong revenue growth over the next few years.
While the company still has a long way to go before it can realize big returns on its large investments, investors may find it worthwhile to get in early to potentially benefit from the company's revival.
2. Amazon
Amazon is one of the most attractive AI stocks out there right now, and its cloud platform, Amazon Web Services (AWS), has carved out a strong role for itself in the industry. Meanwhile, its stock price has surged 45% over the past 12 months, yet its P/S ratio of around 3 makes it a bargain buy.
The retail giant's business has exploded over the last year. Amazon's operating profit has increased by more than 1,300% and its free cash flow has doubled to nearly $46 billion. The company has benefited from easing inflation and management's cost-cutting measures, reaping big gains from its e-commerce division.
But in recent months, all eyes have been on AWS. With a 31% market share in cloud computing, the company has a potential advantage in AI, and the company is making the most of it by expanding AWS. Amazon is investing billions of dollars to build more data centers around the world and increase its cloud capacity.
The tech giant has a 15-year plan to develop AWS infrastructure in Taiwan, while Amazon has committed to investing $13 billion in similar projects in India, expanding its cloud infrastructure in one of the world's fastest-growing data center markets.
In addition to its large cash reserves and dominant position in the cloud market, Amazon stock is worth considering given the various ways generative technology could expand the business: Expanding AI capabilities could help it better analyze shopping trends and make more accurate product recommendations on its retail sites, improve delivery logistics, expand AI services on AWS, and serve more targeted ads on its streaming service, Prime Video.
Amazon is on a promising growth trajectory in AI, making it a more worthy investment than AMD this June.
Should I invest $1,000 in Intel right now?
Before you buy Intel stock, consider the following:
of Motley Fool Stock Advisor The analyst team Top 10 Stocks Here are the stocks investors should buy right now: Intel isn't one of them. These 10 stocks have the potential to generate huge profits over the next few years.
Things to consider NVIDIA This list was created on April 15, 2005…If you invested $1,000 at the time of recommendation, That comes to $808,105.!*
Stock Advisor With portfolio construction guidance, regular updates from our analysts, and two new stock picks every month, we provide investors with an easy-to-follow blueprint for success. Stock Advisor The service is More than 4 times S&P 500 Recovery Since 2002*.
View 10 stocks »
*Stock Advisor returns as of June 10, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, serves on The Motley Fool's board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Advanced Micro Devices, Amazon, and NVIDIA. The Motley Fool recommends Intel and has recommended buying Intel's January 2025 $45 calls and selling Intel's August 2024 $35 calls. The Motley Fool has a disclosure policy.
Forget AMD and 2 Artificial Intelligence (AI) Stocks to Buy Instead was originally published by The Motley Fool.
