These companies are a bargain compared to AMD, and you certainly don't want to miss out on the potential.
Interest in artificial intelligence (AI) has surged in the last year, highlighting some tech stocks that stand to benefit greatly as the industry develops. Advanced Micro Devices (AMD -2.79%) Since the beginning of 2023, the company's stock price has risen 150%, mainly due to investor expectations for AI. AMD is the second largest graphics processing unit (GPU) market share, and Wall Street has become bullish as more companies launch similar products. NVIDIA Due to increasing demand for high-performance chips, they are constantly selling out.
But AMD's shares have tumbled after a lackluster quarterly earnings report and a stock price surge, suggesting the company's business isn't making a good return on its AI investments and that there may be better options to back the fast-growing industry.
Data by YCharts
This chart compares valuations, using price-to-earnings (P/E) ratios, for some of the most prominent companies in the AI industry. AMD's stock is by far the cheapest, with a P/E of 238. However, two companies stand out as cheaper relative to their peers: Intel (International Trade Commission -0.42%) and alphabet (Google 0.46%) (Google 0.58%).
These companies are expanding into the AI space, which could pay off big in the long run: one is investing in AI chip manufacturing, while the other is booming in AI software.
So, consider forgetting AMD in 2024 and buying one of these AI stocks instead.
1. Intel: Achieving growth across multiple business segments
Intel investors haven't had an easy time in recent years, with the stock down 35% since 2019. The company was once the market leader in semiconductors and a manufacturing dominance, apple The company is known as the primary supplier of chips for Macs, but as it struggled to keep up with competitors like AMD and Nvidia, Intel fell behind and lost market share.
But sometimes a company's best test is how it responds to challenges, and recent developments suggest that Intel may come back strong in the coming years. The chipmaker has increased its central processing unit (CPU) market share for three consecutive quarters. Starting in Q4 2023, Intel's CPU share rose from 61% to 64%, while AMD's share fell from 36% to 33%.
Moreover, Intel's recent earnings further highlight the company's modest improvement. The company's revenues rose 9% year over year to $13 billion in the first quarter of 2024. The company benefited from a 31% increase in client revenues, reflecting a surge in consumer sales. Meanwhile, the company's Data Center and AI division saw revenues grow 5%, and its operating income reached $184 million after posting a loss of $69 million a year ago.
Intel is realigning every part of its business to prioritize long-term profit growth. The company is reshaping its business model around AI and manufacturing, with plans to build at least four factories in the U.S. and more overseas. Intel aims to become the largest U.S. AI chip maker, which will allow it to benefit from growing demand for GPUs across the industry.
With bright growth prospects and a cheap stock price, Intel stock is worth considering over AMD in 2024.
2. Alphabet: The best way to invest in AI software
Alphabet is home to some of the most widely recognized brands, including Android, YouTube, and many of the products under Google's umbrella. Alphabet's success has made it the fourth most valuable company in the world, with a market capitalization of over $2 trillion.
Data by YCharts
This technology giant has proven to be one of the most reliable long-term investments. This year alone, Alphabet has outperformed many of its rivals in share price growth (see chart above). However, it also has the lowest P/E ratio of these companies, indicating it is trading at the cheapest price. Additionally, Alphabet's stock price is the cheapest of these technology companies, making its shares the most affordable.
Not only is Alphabet trading at a cheap price, it also has great potential in AI. The company was an early investor in the industry, first implementing AI in its search engine in 2001. Then, in 2016, the tech giant became an AI-first company, far ahead of many of its rivals. Its AI research subsidiary, Google DeepMind, drives the company's innovation.
Meanwhile, Alphabet’s recently unveiled AI model, Gemini, could collectively boost the company’s position in the industry by introducing generative upgrades across its product lineup.
Alphabet likely has a bright future in technology and is too good to pass up at its current price point, making it a great buy in 2024 and a better option than AMD.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of 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, Alphabet, Amazon, Apple, Microsoft, and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short August 2024 $35 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
