A bull market is here: 2 artificial intelligence stocks to buy now down 27% and 60%

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Buying these beat-down chip stocks can help you capitalize on the AI ​​revolution.

Artificial intelligence (AI) is changing the world at an incredible pace, and its seismic effects are just beginning to emerge. The rapid evolution of this new category of software is poised to impact nearly every industry, and is being made possible by advanced semiconductors.

In particular, the rise of AI has yielded incredible gains for stocks. Nvidia — the lead designer of graphics processing units (GPUs) used to run AI software. But some promising players in the AI ​​semiconductor space are trading at massive discounts to previous highs.

With that in mind, read on to find out why two Fool.com contributors believe investing in these beat-down chip stocks will allow you to reap big profits from the rise of AI.

Intel is a smart turnaround play.

Keith Noonan: There is no doubt about it- Intel (INTC 2.21%) Stocks have had a bad year. The chip giant's share price has fallen nearly 40% in 2024 trading, and is now 60% below its lifetime high.

Unfortunately, Intel faces some powerful near-term headwinds that have caused the market to reevaluate the company's turnaround prospects. While Intel's core business units actually delivered solid results in the first quarter, the weaker performance of the businesses and the growth bets the company has made over the past decade weighed on its results. Revenue still rose nearly 9% year-over-year to $12.7 billion in Q1, thanks largely to an easier base compared to last year's terrible quarter, but the stock got crushed after its most recent earnings report.

Additionally, the company faces geopolitical headwinds. Intel's sales outlook is now under some pressure as China bans the use of its processors in computers used for government purposes. News also hit recently that Intel has lost the export license that allowed it to sell processors to Huawei, a leading Chinese technology giant. On the other hand, Intel could actually benefit in the long term from the escalating tensions between the US and China.

Unlike most semiconductor companies, Intel actually designs. And prepares The majority of his own chips. Because chip fabrication is resource-intensive, most chip companies choose to simply design their own semiconductors and then contract out fabrication services to a third-party provider.

When it comes to manufacturing high-performance chips used for AI and accelerated computing applications, Taiwan Semiconductor Manufacturing remains the clear leader in the space and reportedly holds nearly 90% market share. With indications that China will take steps to gain greater control over Taiwan within the next decade, TSMC's importance in the semiconductor supply chain poses serious economic and national security threats to the US and other Western countries.

In response, Intel is making a big part of its business into manufacturing services for outside customers — and it's already getting massive subsidies from countries that want to improve their domestic chip production capabilities. Focused on creating. Intel's turnaround and rise as a third-party fab are still in the early stages, but the long-term payoff for investors who back the stock at this beat-up point could be huge.

An AI stock primed for a rebound

Jeremy Bowman: Arm holdings (ARM 7.71%) It hasn't even gone public for eight months, but the stock has seen plenty of volatility during that time.

The chip stock went public last September at $51 a share and rose to $164 following its fiscal third-quarter earnings report in February. Since then, the stock has retreated, and is now 27 percent below its peak, in line with a broader selloff in AI stocks.

However, Arm looks like a good bet to outperform in the near term and move up in the long run.

First, the company has a close relationship with Nvidia, which licenses its CPU architecture for its chips, including its new Blackwell platform. Although Nvidia has yet to report earnings this quarter, all signs point to another strong quarter for the AI ​​chip leader.

Companies love it. Tesla And Amazon has announced its relationship with Nvidia and touted its growing inventory of GPUs, showing how much demand Nvidia's products have. Arm also benefits from a long history of making power-driven chip designs, which are favored in AI because models like ChatGPT require large amounts of power to run.

Additionally, demand for AI products remains strong, even as investors have sold off AI stocks in recent weeks. Super Microcomputer just reported 200% year-over-year revenue growth in its fiscal third quarter, which bodes well for Arm's demand outlook.

Arm also has exposure to non-AI businesses, so it won't make the same eye-popping growth as Supermicro, but its competitive advantages, its powerful architecture, close relationship with Nvidia, and licensing business model. With, should be. Help the company recover its losses and deliver strong performance in the long run.

John Mackey, former CEO of Whole Foods Market, is a member of the board of directors of The Motley Fool, an Amazon subsidiary. Jeremy Bowman has positions at Amazon. Keith Noonan has no position in any stocks. The Motley Fool has positions in and recommends Amazon, Taiwan Semiconductor Manufacturing, and Tesla. 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.

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