Better AI Stocks: Nvidia vs. Intel

Technology stocks fell sharply, Nasdaq-100 Technology Sector down 10% in just five days. Recession fears sparked a big sell-off, with the seven most valuable tech companies losing a combined $1 trillion in market value on Aug. 5.

As a result, now is a great time to add companies to your portfolio that operate in lucrative fields like artificial intelligence (AI). Despite the market decline, AI remains a sector with huge growth potential. Data from Grand View Research shows that the market reached $197 billion last year. However, that number is expected to reach almost $2 trillion by the end of the decade, growing at a compound annual rate of 37%.

With companies driving much of the industry, it’s hard to go wrong investing in shares of integrated circuit companies. Nvidia (NVDA -0.21%) AND Intel (INTC -3.81%) are attractive options, especially after a sale. Nvidia designs the chips used by most AI developers. Intel is building the world’s largest AI chip factory in Ohio as it seeks to regain its position as a top maker.

So let’s take a closer look at the activities of these chip manufacturers and determine whether it’s worth investing in AI stocks or in Nvidia or Intel.

Nvidia

Nvidia shares have fallen 10% since July 30 as Wall Street has cooled on tech stocks. But past trends suggest the company won’t be down for long, and it may be worth buying the dip.

The company’s shares fell 50% during the 2022 economic crisis, driven by significant spikes in inflation and reduced spending in many markets. But improving macroeconomic conditions and a boom in artificial intelligence have seen the stock price rise 586% since then, along with rising profits.

Data by YCharts.

Nvidia’s revenue, operating income, and free cash flow have all reached new highs over the past year, making the recent sell-off look like an overreaction. The current economy is very different than it was in 2022 or even 2008. Many tech companies are growing and have had multiple quarters of promising results.

Meanwhile, Nvidia is at the top of its AI game, accounting for 80% of AI graphics processing units (GPUs). The company has gained an industry advantage over rivals such as AMD and Intel, which has allowed it to extend its brand strength. Millions of developers have become so accustomed to Nvidia’s CUDA software, which accompanies its AI graphics processors, that many are hesitant to switch to a competitor’s product.

As a result, the company has maintained its dominance in AI even as its competitors have introduced similar offerings at lower prices. With solid profits and a significant market share, Nvidia is an attractive investment after the sell-off.

Intel

Intel’s stock price has fallen 34% over the past five days, its worst decline in decades. The decline was driven by economic concerns and exaggerated by weak quarterly results.

The company reported its second-quarter results on Aug. 1. Revenue fell 1% year over year, missing estimates by $150 million. Meanwhile, earnings per share of $0.02 missed expectations by $0.08.

The weak earnings reflect Intel’s sizable investment in restructuring, shifting to a foundry model and putting more emphasis on AI. The company is focused on the big picture and long-term benefits, which suggests investors should do the same.

Intel has made some major changes since last year, unveiling a slew of new AI-enabled chips and breaking ground on the first of at least four chip factories in the U.S. None of this is cheap, as reflected in its second-quarter losses. But it could pay off in the next five to 10 years.

CEO Pat Gelsinger said in a recent earnings call that increased production of AI-enabled Core Ultra PC chips contributed to the weak results. However, he added that “AI PCs will grow from less than 10% of the market today to more than 50% in 2026,” suggesting it will likely make up those losses.

The company is taking a similar approach to manufacturing. Intel has invested billions to open chip factories across the U.S. as it seeks to become the nation’s leading AI chipmaker. That will take time, but it may be worth buying the stock cheaply now to hold it for the long term.

Which AI Company Is Better in 2024: Nvidia or Intel?

Nvidia and Intel are at completely different stages of AI development: one dominates the industry, while the other has yet to see a return on investment.

Data according to YCharts; P/E = Price to Earnings.

Given their valuations, neither is a huge bargain. But Nvidia stock is a better value, with a lower price-to-earnings (P/E) ratio. Meanwhile, its P/E is close to its 10-year average for that metric, while Intel’s is well above its average.

Intel could be a smart long-term play, but its pathetic earnings and high valuation make Nvidia a more attractive buy right now. Nvidia has a strong AI presence and consistent earnings, making it too good to pass up.

Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 call options on Intel and short August 2024 $35 call options on Intel. The Motley Fool has a disclosure policy.