Nvidia stock could face a reckoning if the company doesn’t meet expectations.
Phenomenon of Artificial Intelligence (AI). Nvidia (NVDA -3.22%) recently caught up Microsoft to become the most valuable company in the world. Valued at more than $3 trillion, Nvidia has delivered incredible profits for investors as sales of its AI chips exploded.
Despite Nvidia’s success, there is a distinct possibility that the stock has reached full bubble territory. Nvidia shares trade for about 40 times sales, well above its peak valuation at the height of the dot-com bubble. Nvidia will have to continue growing at an incredible pace while maintaining sky-high profit margins despite ever-increasing competition to justify the stock’s price tag.
Nvidia’s nosebleed valuation makes the stock incredibly risky. For investors who want to bet on AI without taking as much risk, Intel (INTC 1.53%) And Qualcomm (QCOM -1.36%) seem like safer bets.
Someone has to make all those AI chips
Intel sells its own AI accelerators, the latest of which is the ultra-powerful Gaudi 3. However, the company’s biggest long-term opportunity could be producing AI chips for others.
Intel has its eye on the semiconductor foundry market. The company expects to be the world’s second-largest foundry by 2030 and plans to regain manufacturing leadership next year with the launch of its Intel 18A process node. Intel recently began large-scale production of its Intel 3 node, the first advanced process offered to foundry customers. A variant of Intel 3 will focus on AI chips and similar applications.
Intel has booked more than $15 billion in business to date for its foundry, spanning Intel 3, Intel 18A, advanced packaging services and its mature Intel 16 node. The most notable deal to date is a pact with Microsoft to manufacture an unnamed chip on the Intel 18A process. Microsoft designs its own central processing units (CPUs) and AI accelerators.
It will take some time for Intel to scale up its production capacity, but the company expects its foundry business to reach breakeven within a few years as sales grow rapidly. As competition increases in the AI ​​chip industry, Intel will be in a prime position to benefit.
The AI ​​PC
The era of Windows PCs running solely on Intel or AMD processors is officially over. The first batch of Windows laptops powered by powerful Qualcomm technology Arm-based CPUs launched this month. A big selling point is the capable AI processor packed into each chip, allowing AI features to be built into Windows and other software.
Arm Holdings has high expectations for the PC market. The company expects Arm-based PCs to make up more than 50% of the Windows PC market within five years. While that estimate seems optimistic, Arm-based PCs are likely here to stay.
Qualcomm won’t be the only player once its exclusivity deal with Microsoft expires this year. However, the company is a pioneer in this market and is giving it time to win over consumers with its powerful Snapdragon chips.
It’s hard to say whether the addition of AI capabilities will trigger a major PC upgrade cycle. If so, Qualcomm-powered PCs will be a viable option for those looking to take advantage of AI-powered features. Qualcomm is already a leader in the smartphone chip market, and its entry into the PC market opens up a whole new revenue stream for the company.
While Nvidia is the biggest AI winner to date, its stock could plummet if the extreme expectations baked into its valuation are not met. Intel and Qualcomm both offer lower-risk ways for investors to bet on AI.
Timothy Green has positions in Intel. The Motley Fool holds positions in and recommends Advanced Micro Devices, Microsoft, Nvidia, and Qualcomm. The Motley Fool recommends Intel and recommends the following options: long January 2025 calls of $45 on Intel, long January 2026 calls of $395 on Microsoft, short August 2024 calls of $35 on Intel, and short calls in January 2026 from $405 on Microsoft. The Motley Fool has a disclosure policy.
