Artificial intelligence (AI) phenomenon Nvidia (NVDA -1.91%) recently overtook Microsoft to become the most-valuable company in the world. Valued at more than $3 trillion, Nvidia has delivered incredible gains for investors as sales of its AI chips exploded.
Despite Nvidia's success, there's a distinct possibility that the stock has reached full-blown bubble territory. Nvidia stock trades for around 40 times sales, well beyond its peak valuation at the height of the dot-com bubble. Nvidia is going to need to continue to grow at incredible rates while maintaining its sky-high profit margins in the face of ever-increasing competition to justify the stock's price tag.
Nvidia's nosebleed valuation makes the stock incredibly risky. For investors looking to bet on AI without taking so much risk, Intel (INTC 0.16%) and Qualcomm (QCOM -1.10%) look like safer bets.
Somebody has to make all those AI chips
Intel sells its own AI accelerators, with the latest being the ultrapowerful Gaudi 3. The company's biggest long-term opportunity, though, could be manufacturing AI chips for others.
Intel has its eye on the semiconductor foundry market. The company expects to become the world's second-largest foundry by 2030, and it plans to regain manufacturing leadership next year with the launch of its Intel 18A process node. Intel recently began high-volume production of its Intel 3 node, its first leading-edge process to be offered to foundry customers. A variant of Intel 3 will target AI chips and similar applications.
Intel has booked more than $15 billion worth of business for its foundry so far, spread across Intel 3, Intel 18A, advanced-packaging services, and its mature Intel 16 node. The highest-profile deal so far is a pact with Microsoft to manufacture an unnamed chip on the Intel 18A process. Microsoft designs its own server central processing units (CPUs) and AI accelerators.
It will take time for Intel to scale up its manufacturing capacity, but the company expects the foundry business to reach breakeven within a few years as revenue quickly ramps up. As competition in the AI chip industry intensifies, Intel will be in a prime position to benefit.
The AI PC
The age of Windows PCs running exclusively on Intel or AMD processors is officially over. The first batch of Windows laptops powered by Qualcomm's powerful Arm-based CPUs launched this month. A big selling point is the capable AI processor included in each chip, enabling AI features built into Windows and other software.
Arm Holdings has high hopes for the PC market. The company believes Arm-based PCs will account for more than 50% of the Windows PC market within five years. While that estimate looks optimistic, Arm-based PCs are likely here to stay.
Qualcomm won't be the only player once its exclusivity deal with Microsoft reportedly expires this year. However, the company is a first mover in this market, giving it time to win over consumers with its powerful Snapdragon chips.
It's difficult to say whether the addition of AI capabilities will trigger a major PC upgrade cycle. If it does, Qualcomm-powered PCs will be a viable option for those looking to tap into AI-powered features. Qualcomm is already a leader in the smartphone-chip market, and its entry into the PC market opens up a brand new revenue stream for the company.
While Nvidia has been the biggest AI winner so far, the stock could tumble if the extreme expectations baked into the valuation aren't met. Intel and Qualcomm both offer lower-risk ways for investors to bet on AI.
