These companies have exciting prospects in AI, but one is trading at a much better price.
Chip stocks have captivated Wall Street over the past year as artificial intelligence (AI) booms in demand for graphics processing units (GPUs) have skyrocketed. Powerful hardware is critical for training and running AI models. Thus, as interest in AI has grown, so have chip sales.
As a result, like chip stocks Nvidia (NVDA -0.09%) And Intel (INTC 1.05%) Having been put under a microscope over the past year, analysts have questioned how much potential these companies have for advancements in AI. Nvidia has excited countless investors, launching AI chips and quickly becoming the go-to GPU supplier for many AI-powered companies.
Intel has taken a slow approach to AI. However, it is slowly setting itself apart from its chip rivals by expanding manufacturing. The company is poised to become one of the largest semiconductor manufacturers in the US and Europe as chip demand continues to grow.
Let's take a closer look at these two chipmakers and determine whether Intel or Nvidia is the better AI stock this June.
Intel
Intel shares have taken a deep dive since 2021, falling 46 percent. Investors began to lose confidence in the tech giant as macroeconomic headwinds, increased competition, and a lack of direction led to significant financial losses. However, recent developments suggest that now may be the best time to invest, as Intel is at the start of a potential recovery.
Last year, Intel announced it was transitioning its business to a foundry model and would begin building chip plants across the United States. Taiwan Semiconductor Manufacturing Co It is currently the world's largest semiconductor chip maker, accounting for at least 60 percent of the market.
However, rising tensions between China and Taiwan have forced tech companies to reconsider their reliance on TSMC. Intel is capitalizing on the need for more manufacturing options by diving headfirst into the industry.
Starting a foundry business is expensive, which is why most companies choose to outsource their manufacturing. As a result, it will take time for Intel to recoup its investment. But this move can pay off significantly in the long run. In fact, the company has said it believes the change will save it between $8 billion and $10 billion by 2025, and help it reach an adjusted margin of 60%.
Intel has a long way to go before it can reclaim its leading position in chips, but its venture into manufacturing could see it benefit from the tailwinds of AI and tech in the future.
Nvidia
Shares of Nvidia are up 192% over the past 12 months and 132% year to date. The company's business has exploded alongside the boom in AI, with its chips becoming the gold standard for AI developers worldwide.
Nvidia's success in the industry has led to multiple quarters of posting record earnings. The tech giant announced its results for the first quarter of 2025 (ending April 2024) on May 22. Revenue rose 262 percent for the period, beating Wall Street expectations by $1.4 billion. The bulk of its growth came from its data center segment, which saw a 427% increase in revenue thanks to increased AI GPU sales.
However, Nvidia's dominance in the industry doesn't mean it has slowed down its AI development. On June 2, CEO Jensen Huang announced Rubin, its latest AI chip architecture, and a more powerful version of its Blackwell platform, which was unveiled in March.
The announcement saw Nvidia's share price jump 5% on June 3. The chipmaker also promised to adhere to a “one-year rhythm” for its product releases, while it previously stuck to a two-year timeline for chip updates.
Nvidia is on a promising growth path in AI, and will likely continue to dominate the market for years.
Is Intel or Nvidia the better AI stock?
Intel and Nvidia are at completely different stages in their AI journey. Intel seems to be just getting started, while Nvidia has gained a well-established position that isn't likely to diminish anytime soon.
As a result, their stocks are trading at significantly different valuations.
Data via YCharts
This chart compares the prices of Intel and Nvidia using two useful metrics: forward price-to-earnings (P/E) and price-to-sales (P/S). For both metrics, the lower the figure, the better the value. As a result, the figures above suggest that Intel's stock is trading at a bargain relative to Nvidia, with a significantly lower forward P/E and P/S. The data suggests that Intel is potentially a low-risk way to invest in AI, with a better value proposition.
So despite Nvidia's more stable position in AI, it may be worth taking a chance on a better-valued stock like Intel and holding onto the company for the long term as it grows. Intel may have more room to run in the coming years, given its AI business is still in its infancy and its foundry model has a lot of potential.
Danny Cook has no position in any stocks. The Motley Fool has positions in Nvidia and Taiwan Semiconductor Manufacturing and recommends it. 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.