While chip designer Nvidia‘s shares have soared recently, chip giant Intel (NASDAQ: INTC) hasn’t done very well. And a big part of this story has to do with artificial intelligence (AI). Nvidia has poured its resources into AI and the company dominates the AI chip market today. Intel has fallen behind in the AI race, and that has weighed on its earnings and stock performance.
But this doesn’t mean we should forget about this chip powerhouse. In fact, Intel could be making a pretty good buy today, as the company faces a crucial moment of transition: one that could boost growth. The company has two specific projects that could change long-term earnings. Intel has put a big focus on AI with a whole new wave of product releases, and the company is opening up its manufacturing to others – to become the only US-based chipmaker.
Does this make Intel, which is down about 40% this year, a once-in-a-generation investment opportunity? Let’s find out.
The first AI growth opportunity
As mentioned, Intel missed its first opportunity for AI revenue growth and Nvidia secured the top spot with its powerful graphics processing units (GPUs). But the good news is that the opportunities for AI growth are likely to last for quite some time as we are in the early stages of this story – and that presents an opportunity for Intel to gain market share at this point and in the future.
Late last year, Intel unveiled a portfolio of AI products, including the Intel Core Ultra mobile processing family. This innovation ushers in the era of the AI personal computer, a PC built to handle AI tasks smoothly. Intel said more than 5 million AI PCs have been shipped since this release, and the company expects to exceed its previous forecast for shipping 40 million AI PCs this year.
And Intel recently announced its Gaudi 3 AI accelerator, which it claims can beat Nvidia’s best chip, the H100, in inference and power efficiency.
Of course, Nvidia and other chip designers continue to innovate – and Nvidia’s new Blackwell architecture and top-performing chip, coming to market later this year, will likely outpace rivals’ performance. But that’s not a problem, because due to the enormous supply of AI projects and the enormous demand for chips, there should be enough turnover for many chip manufacturers to succeed. Companies from Nvidia to cloud provider Oracle and equipment maker Super microcomputer they’ve all been talking about record demand for AI lately.
Intel’s foundry operations
So it’s clear that AI can boost Intel’s revenues. And the company’s foundry operations should do the same. While this won’t happen overnight, it can be worth the wait. Intel is currently investing heavily to ramp up its foundry operations, with the aim of becoming the second largest foundry in the world by 2030.
As part of this, Intel is moving toward its goal of developing five new process technology nodes in four years, with the aim of putting more and more power on each chip. The smaller the node, the greater the number of transistors that can be crammed onto one chip. This improves performance and reduces energy consumption and costs.
Intel is now setting up its 18A node and says it has signed up a total of six customers. The latest is a leader in the defense industry, and this customer chose Intel not only for its technology, but also for its location. This US presence could win over many North American customers seeking a secure supply base close to home.
Although Intel is going up against Giant Taiwanese semiconductorThe market is huge and growing — Intel says the current $110 billion foundry market should reach $240 billion by the end of the decade. This, Intel’s progress to date, and its presence in North America are all green lights for the company’s future.
Meanwhile, the stock is trading at just 27 times forward earnings estimates, which seems very reasonable given its future prospects.
How often do we get the chance to buy shares of a future leader in chip manufacturing – and at this price? Not often. This and all the points I’ve mentioned make Intel a unique investment opportunity right now.
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Adria Cimino has positions at Oracle. The Motley Fool holds positions in and recommends Nvidia, Oracle, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 relying on Intel and short May 2024 $47 relying on Intel. The Motley Fool has a disclosure policy.
A 40% Drop: Is Intel a Once-in-a-Generation Investment Opportunity? was originally published by The Motley Fool
