Interest in artificial intelligence (AI) has skyrocketed since the beginning of 2023, with the release of OpenAI's ChatGPT starting a boom in the industry. As a result, many tech stocks have seen big gains over the past 12 months as investors have become bullish on power generation technology.
The growing demand for AI services has put chipmakers in the spotlight, highlighting the important role they must play in market development. These companies produce the hardware that enables AI, and demand for their chips has soared since last year.
Nvidia (NASDAQ:NVDA) is at the forefront of the AI chip industry and has a leading role in graphics processing units (GPUs), giving it a head start in AI.Meanwhile, like a rival intel (NASDAQ:INTC) got a late start in the AI space, spending the last year developing a chip to rival Nvidia's offerings.
Despite their differences, both companies could be a lucrative way to invest in emerging markets. Nvidia has a more established position in his AI space, so the company's stock could be a good choice to hold for many years. Intel, on the other hand, may have more room as its AI efforts are still in its infancy.
So let's compare the businesses of these companies and decide whether Intel or Nvidia is the better AI stock this May.
intel
Intel's stock price is up about 5% from last year. This number is significantly lower than AI's two biggest rivals, with NVIDIA stock up 218% and Advanced Micro Devices' share rose 58% over the same period. But given Intel's position in the market, it's important to keep a long-term perspective when it comes to tech stocks.
Intel has had a tough year, losing central processing unit (CPU) market share due to increased competition, a general market downturn in 2022, and a global chip shortage due to the pandemic that has only recently begun to subside.
After repeated blows to its business, Intel was forced to overhaul its entire model in favor of chip manufacturing and AI. The company is moving toward a foundry model and has plans to build semiconductor manufacturing plants across the United States.
Meanwhile, Intel announced a range of new AI chips in April and debuted its Gaudi3 AI accelerator. The tech giant says the new hardware is 50% better in inference and 40% more power efficient than his Nvidia GPUs.
Intel still has a long way to go in the AI space, but Q1 2024 earnings suggest the business is moving in the right direction. During the quarter, the company's Data Center and AI business unit posted 5% year-over-year revenue growth, and operating profit soared 2,000%.
Additionally, Intel's free cash flow has increased by about $2 billion since January, indicating the company is on a promising growth trajectory.
Nvidia
Nvidia made quite a bit of headlines last year. The company's GPUs became the go-to for his AI developers around the world, and business grew explosively.
The company has top market share in GPUs and is partnered with ChatGPT developer OpenAI, making it well-positioned to take full advantage of the AI boom in 2023. The graph above shows how Nvidia has benefited from industry growth, with the company's stock price soaring over the past year, and its revenue, operating income, and free cash flow also surging.
Experts estimate that Nvidia has an estimated 80% share of the data center AI chip market. Rivals like Intel and AMD are starting to make headway, as evidenced by their growth in recent earnings releases. However, the AI market is predicted to reach nearly $2 trillion in spending by 2030, indicating there is room for Nvidia to maintain its lead and welcome new competition.
Which is a better AI stock: Intel or Nvidia?
Intel and Nvidia are at very different stages in their AI efforts. Nvidia has established a role in the market as a leading supplier of GPUs to dozens of AI businesses. Intel, on the other hand, only entered the GPU market last year and launched a competing AI chip in 2024.
As a result, the choice for these companies comes down to whether they pay a premium for the stability of an established AI business or bet on a more valuable startup.
This graph shows that Intel's forward price-to-earnings and price-to-sales ratios are significantly lower than Nvidia's. The numbers show that Intel is trading at a discount compared to its rivals, making it more profitable for new investors.
With such a difference in value, I recommend investing in Intel if you want to get into AI. Intel's stock price is $30 per share compared to Nvidia's $904 per share, so you have more money to spend with Intel. And if held over the long term, the company could earn significant profits as it expands its AI business.
Should you invest $1,000 in Intel right now?
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Dani Cook has no position in any stocks mentioned. The Motley Fool has a position in and recommends Advanced Micro Devices and his Nvidia. The Motley Fool recommends Intel and recommends options for long January 2025 $45 calls on Intel and his short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
The first edition of Improving AI Stocks: Intel vs. Nvidia was published by The Motley Fool.
