Better AI Stock: Intel vs. Nvidia

Interest in artificial intelligence (AI) has skyrocketed since the start of 2023, with the launch of OpenAI’s ChatGPT kicking off a boom in the industry. As a result, many tech stocks have enjoyed significant gains over the last 12 months as investors have grown bullish over the generative technology.

Increased demand for AI services has put a spotlight on chipmakers, highlighting the crucial role they have to play in the market’s development. These companies are producing the hardware that makes AI possible, with chip demand soaring since last year.

Nvidia (NVDA -1.99%) has been at the forefront of the AI chip industry, with its leading role in graphics processing units (GPUs) allowing it to get a head start in AI. Meanwhile, a competitor like Intel (INTC -0.62%) has had a slower start in AI, using the last year to develop chips to rival Nvidia’s offerings.

Despite their differences, both companies could be lucrative ways to invest in the budding market. Nvidia’s more established position in AI could make its stock an excellent option for holding for many years. Meanwhile, Intel could have more room to run, with its journey into AI only just beginning.

So, let’s compare these companies’ businesses and determine whether Intel or Nvidia is the better AI stock this May.

Intel

Shares in Intel are up about 5% year over year. The figure is significantly lower than two of its biggest AI rivals, with Nvidia’s stock rising 218% and Advanced Micro Devices‘ shares up 58% in the same period. However, Intel’s position in the market is why it’s crucial to keep a long-term perspective when it comes to tech stocks.

Intel has had some challenging years, losing market share in central processing units (CPUs) due to increased competition, a marketwide downturn in 2022, and a pandemic-driven global chip shortage that has only recently begun to subside.

Repeated hits to its business forced Intel to overhaul its entire model, prioritizing chip manufacturing and AI. The company is transitioning to a foundry model, with plans to build semiconductor manufacturing plants throughout the U.S.

Meanwhile, Intel announced a range of new AI chips in April, debuting its Gaudi3 AI accelerator. The tech giant says the new hardware outperforms Nvidia’s GPUs by 50% in inference and 40% in power efficiency.

Intel still has a long way to go in AI, but its earnings in the first quarter of 2024 suggest the business is moving in the right direction. During the quarter, its data center and AI business segment posted revenue growth of 5% year over year, with operating income soaring 2,000%.

Additionally, Intel’s free cash flow has risen by about $2 billion since January, indicating it’s on a promising growth trajectory.

Nvidia

Nvidia has made more than a few headlines over the last year. Business has exploded as its GPUs have become the go-to for AI developers worldwide.

Data by YCharts

The company’s leading market share in GPUs and partnership with ChatGPT developer OpenAI perfectly positioned it to take full advantage of the boom in AI in 2023. The chart above shows how Nvidia benefited from the industry’s growth, with its stock skyrocketing alongside soaring revenue, operating income, and free cash flow over the last year.

Experts estimate Nvidia has achieved an estimated 80% market in data center AI chips. Rivals like Intel and AMD are beginning to make headway, proven by recent growth in their recent earnings releases. However, the AI market is projected to hit nearly $2 trillion in spending by 2030, indicating there will be room for Nvidia to retain its lead and welcome new competition.

Is Intel or Nvidia the better AI stock?

Intel and Nvidia are at vastly different stages in their AI journeys. Nvidia has an established role in the market as the primary supplier of GPUs to dozens of AI businesses. Meanwhile, Intel only ventured into the GPU market last year and launched competing AI chips in 2024.

As a result, the choice between these companies lies in whether you’d rather pay a premium for the stability of an established AI business or bet on a better-valued up-and-comer.

Data by YCharts

This chart shows Intel has a significantly lower forward price-to-earnings ratio and price-to-sales ratio than Nvidia. The figures indicate Intel is trading at a bargain compared to its rival, giving new investors more bang for their buck.

With such a considerable difference in value, I’d recommend investing in Intel if you’re looking to get into AI. Intel’s stock price of $30 per share, compared to Nvidia’s $904 per share, means your money will go much further with Intel. And if held over the long term, the company could deliver major gains as it develops its AI business.

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 calls on Intel and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.