Increased demand for artificial intelligence (AI) services created steep competition among tech companies, particularly in the chip market. Hardware like graphics processing units (GPUs) are crucial to training AI models, creating a lucrative opportunity for the companies developing these chips.
Nvidia took the lead in AI GPUs, which led its stock price and earnings to skyrocket over the last year. However, eyes have also been on chipmakers Intel (INTC 2.53%) and Advanced Micro Devices (AMD 4.88%), which launched competing chips and could offer significant gains as the industry expands.
Intel launched new AI accelerators this year and is expanding its manufacturing division with hopes of becoming a leading AI chip fabricator. Meanwhile, AMD's second-largest market share in GPUs could grant it a lucrative role with AI in the long term, allowing it to fill in the supply gaps that Nvidia might not be able to meet.
These companies are at earlier stages of their AI journeys than Nvidia, but that could mean they have more room to run in the coming years. So let's compare these chipmakers and determine whether Intel or AMD is the better AI stock right now.
Intel
Shares in Intel trickled up 3% over the 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 had seen its share price tumble 7% since last July. The company concerned investors with multiple quarters of disappointing results as it navigated increased competition and changes in the chip market.
However, crucial changes to Intel's business model over the last year show the company playing the long game, making significant investments in its future now to potentially see major gains over the next decade.
First, the tech giant is seeking a bigger role in AI by launching its Gaudi 2 and Gaudi 3 accelerators, which are capable of running AI workloads for data centers. Intel is setting itself apart from rivals like AMD and Nvidia by offering competitive pricing, with its chips costing roughly a third of the price of similar products on the market.
However, the most promising development is Intel's big bet on becoming a leading player in the foundry market. According to Allied Research, the semiconductor foundry market was worth about $107 billion in 2022 and is expanding at a rate that will see it more than double to $232 billion by 2032. Meanwhile, Intel plans to open chip fabs throughout the U.S. as it works to become the country's primary chipmaker, just as GPU demand is soaring.
Getting started in chip manufacturing is costly, and Intel doesn't expect to break even on the venture until 2027. However, the move could significantly pay off over the long term, as Intel benefits from increased chip demand across tech.
Advanced Micro Devices
AMD has become a company to watch over the last year, as it restructured its business to prioritize AI. The company made promising headway in the industry, launching its own AI GPUs and signing clients like Microsoft and Meta Platforms.
Additionally, Tom's Hardware reported last month that AMD had serious inquiries about building an AI cluster that would house at least 1.2 million GPUs. For reference, the best supercomputers in the world are run with less than 50,000 GPUs. As a result, landing this kind of deal could provide a major boost to AMD's earnings.
The chipmaker has exciting prospects in the industry. However, it was let down by recent earnings. In the first quarter of 2024, revenue rose 2% year over year to just over $5 billion. AMD posted revenue gains of over 80% in its data center and client segments. That said, it suffered more than 40% in declines in its client and gaming segments.
So despite an expanding position in AI, AMD still has a lot of work ahead to rally investors with financial growth.
Is Intel or AMD the better AI stock this July?
Intel and AMD have taken 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 aims to become an equal to Nvidia.
However, Nvidia's estimated 90% market share in AI GPUs will likely be challenging to overcome, suggesting Intel might have a better time expanding in the industry than AMD.
Data by YCharts
Moreover, this chart compares the valuations of Intel and AMD using two key metrics: price-to-earnings and price-to-sales ratios. For both metrics, the lower figure signals a better value. As a result, the data indicates Intel is potentially trading at a bargain compared to AMD.
In addition to a promising venture into the foundry market, Intel is a no-brainer this July and a better AI stock than AMD.
