The increased demand for artificial intelligence (AI) services has created intense competition among technology companies, especially in the chip market. Hardware such as graphics processing units (GPUs) are crucial for training AI models, creating a lucrative opportunity for the companies that develop these chips.
Nvidia took the lead in AI GPUs, sending its stock price and earnings skyrocketing over the past year. But eyes are also on chipmakers Intel (NASDAQ: INTC) And Advanced micro devices (NASDAQ: AMD)that brought competing chips to market and could generate significant profits as the industry grows.
Intel launched new AI accelerators this year and is expanding its manufacturing division in hopes of becoming a leading maker of AI chips. Meanwhile, AMD’s second-largest market share in GPUs could give it a lucrative role in AI in the long run, helping to fill supply gaps that Nvidia may not be able to fill.
These companies are at an earlier stage in their AI journey than Nvidia, but that could mean they have more room to run in the coming years. Let’s compare these chipmakers and determine whether Intel or AMD is the better AI stock right now.
Intel
Shares of Intel rose 3% last month as Wall Street appears to be getting behind its long-term potential. The growth is a welcome change after a year of declines, which has seen the stock fall 7% since last July. The company has worried investors with several quarters of disappointing results while facing increased competition and changes in the chip market.
However, significant changes to Intel’s business model over the past year show that the company is taking a long-term view and investing heavily in the future now to potentially deliver big profits in the coming decade.
First, the tech giant is aiming to take a bigger role in AI by launching its Gaudi 2 and Gaudi 3 accelerators, which can run AI workloads for data centers. Intel is differentiating itself from rivals AMD and Nvidia by offering competitive pricing, with its chips costing around a third of comparable products on the market.
The most promising development, however, is Intel’s big bet to become a leading player in the foundry market. According to Allied Research, the semiconductor foundry market was worth about $107 billion in 2022 and is growing at a pace that will more than double to $232 billion by 2032. Meanwhile, Intel plans to open chip factories in the U.S. as it works to become the country’s top chipmaker just as demand for GPUs surges.
It’s expensive to start producing chips, and Intel doesn’t expect to break even until 2027. But the move could pay off significantly in the long run as Intel benefits from increased demand for chips in the tech sector.
Advanced micro devices
AMD has become a company to watch over the past year as it has restructured its business to prioritize AI. The company has made promising strides in the industry, launching its own AI GPUs and signing up customers like Microsoft And Meta platforms.
Additionally, Tom’s Hardware reported last month that AMD had serious questions about building an AI cluster that would house at least 1.2 million GPUs. For reference, the world’s best supercomputers run on fewer than 50,000 GPUs. As a result, striking this kind of deal could provide a big boost to AMD’s revenue.
The chipmaker has an exciting outlook in the industry. However, its recent earnings have been disappointing. In the first quarter of 2024, revenue rose 2% year-over-year to just over $5 billion. AMD saw revenue growth of more than 80% in its data center and client segments. That said, it suffered more than 40% declines in its client and gaming segments.
Despite its growing position in AI, AMD still has a lot of work to do to attract investors with financial growth.
Is Intel or AMD the Better AI Stock in July?
Intel and AMD have different approaches to AI. Intel is trying to differentiate itself in the industry by offering a wide range of chips and investing heavily in manufacturing. Meanwhile, AMD is aiming to become an equal to Nvidia.
However, it will be a challenge to surpass Nvidia’s estimated 90% market share of AI GPUs, suggesting that Intel may fare better than AMD in expanding into the sector.
Additionally, this chart compares the valuations of Intel and AMD using two key metrics: price-to-earnings ratio and price-to-sales ratio. For both metrics, the lower number indicates a better value. As a result, the data suggests that Intel may be trading at a bargain price compared to AMD.
Besides a promising move into the foundry market, Intel is a no-brainer and better AI stock than AMD in July.
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Randi Zuckerberg, former chief marketer and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Meta Platforms, Microsoft and Nvidia. The Motley Fool recommends Intel and recommends the following options: long Jan 2025 $45 calls on Intel, long Jan 2026 $395 calls on Microsoft, short Aug 2024 $35 calls on Intel and short Jan 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Better Artificial Intelligence (AI) Stocks: Intel vs. AMD was originally published by The Motley Fool
