The artificial intelligence (AI) market took over Wall Street last year shows no signs of letting up. Investors have been captivated by the vast potential of the technology, as well as the soaring earnings growth from the companies driving it.
Chipmakers have proven to be some of the best ways to invest in the arena. These companies are developing the hardware that makes the AI market possible, with chip demand skyrocketing over the last year.
As a leading chipmaker, Advanced Micro Devices‘ (NASDAQ: AMD) has seen its share price increase by 31% over the last 12 months. However, a rising stock price and a business that has yet to see a significant return on its investment in AI has made AMD’s shares overpriced for now.
This chart uses forward price-to-earnings (P/E) ratios to compare the valuations of the three most prominent names in chips. Each of these companies has growing ventures in AI and could enjoy major gains in the coming years as the market develops. Yet AMD’s forward P/E — the highest among the three companies — indicates its stock is offering the least value, with the other two looking like more attractive options to invest in AI.
So forget AMD and consider buying these two artificial intelligence stocks now.
1. Intel
With repeated hits to Intel‘s (NASDAQ: INTC) business having brought its share price down about 46% since 2021, the company is undoubtedly a long-term play. However, its forward P/E of 28 could make it one of the best-valued stocks in AI, suggesting now is an excellent time to invest in its growing business.
Recent headwinds have forced Intel to rethink its business model. The company has transitioned to a foundry model, beginning construction on chip manufacturing plants throughout the U.S. Intel is one of the biggest recipients of the CHIPS Act, which aims to expand the U.S.’s chip capacity as tech companies seek to depend less on Taiwan Semiconductor Manufacturing Company. It’ll take time and significant investment, but this move could boost Intel’s revenue for years.
Intel’s focus on manufacturing is promising, as the semiconductor foundry market is projected to soon double in size. According to Allied Market Research, the industry hit $107 billion in spending in 2022 and is expected to achieve more than $231 billion by 2032. Meanwhile, Intel has already signed tech behemoth Microsoft as a chip client.
Moreover, Intel believes its foundry business could result in a lucrative position in AI. CEO Pat Gelsinger said in mid-May that the company expects its Columbus, Ohio, plant to be “the AI systems fab for the nation.” Manufacturing could set Intel apart from other chipmakers in AI over the long term, with companies like AMD focusing on design over production.
In the first quarter of 2024, Intel’s AI and data center segment logged $184 million in operating income, considerably improving on the negative $69 million it posted in the year-ago quarter. Meanwhile, Intel Foundry operating income increased by 8% year over year.
It’ll require patience, but Intel is on a growth path you won’t want to miss. The company has significant potential in AI, and could be a better option than AMD in the coming years.
2. Nvidia
Despite stock price growth of 173% over the last year compared to AMD’s 31%, Nvidia’s lower forward P/E indicates its stock is a better value. This is primarily because of Nvidia’s soaring financial growth over the last 12 months.
In Q1 2025 (which ended April 2024), Nvidia posted revenue growth of 262% year over year, with operating income climbing 690%. The company profited from a 427% rise in revenue from its data center segment, reflecting a spike in AI graphics processing unit (GPU) sales.
Shares of Nvidia have popped 12% since its earnings release on May 22, and appear primed for more. The company’s years of dominance in GPUs allowed it to get a head start in AI, with its lead unlikely to dissipate any time soon.
Intel has smartly found its niche in manufacturing, setting itself apart from Nvidia. However, AMD could have a tough time going up against the likes of Nvidia in AI chips.
In addition to massive potential in AI, Nvidia has become the go-to chip supplier for countless other industries.
For instance, Nvidia CFO Colette Kress has said she expects automotive to be the “largest enterprise vertical within [the] Data Center [segment] this year.” Self-driving technology is advancing quickly, with CEO Jensen Huang calling Tesla‘s autonomous tech the most advanced system out right now. Tesla’s technology is powered by Nvidia’s chips, with demand only likely to continue to rise as the automotive industry develops.
Nvidia just delivered another quarter of stellar earnings, suggesting it could continue on its current growth trajectory for years. Its stock is worth considering right now before it’s too late.
Should you invest $1,000 in Intel right now?
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Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Microsoft, Nvidia, Taiwan Semiconductor Manufacturing, and Tesla. 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 January 2026 $405 calls on Microsoft, and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
Forget AMD: 2 Artificial Intelligence (AI) Stocks to Buy Now was originally published by The Motley Fool
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