Better Artificial Intelligence Stock: Nvidia vs. Intel

Tech stocks have taken a deep dive, with the Nasdaq-100 Technology Sector down 10% in just five days. Fears of a recession triggered a major sell-off, with seven of the most valuable tech companies losing a combined $1 trillion in market value on Aug. 5.

As a result, now is an excellent time to bulk up your portfolio with companies active in lucrative fields like artificial intelligence (AI). Despite the market downturn, AI remains a sector with massive growth potential. Data from Grand View Research shows the market hit $197 billion last year. Yet, that figure is expected to reach nearly $2 trillion by the end of the decade, expanding at a compound annual rate of 37%.

In terms of the companies powering much of the industry, it's hard to go wrong with chip stocks. Nvidia (NASDAQ: NVDA) and Intel (NASDAQ: INTC) are compelling options, especially after a sell-off. Nvidia designs the chips used by the majority of AI developers. Intel is building the world's largest AI chip plant in Ohio as it seeks to retake a position as a top manufacturer.

So, let's take a deep dive into these chipmakers' businesses and determine whether Nvidia or Intel is the better AI stock to invest in.

Nvidia

Nvidia's stock has dipped 10% since July 30 as Wall Street has cooled on tech stocks. However, past trends suggest the company won't be down for long, and it could be worth buying the dip.

The company's stock plunged 50% amid an economic downturn in 2022, fueled by significant spikes in inflation and reduced spending across multiple markets. Yet, macroeconomic improvements and a boom in AI have seen the share price skyrocket 586% since then, alongside soaring earnings.

Data by YCharts.

Nvidia's revenue, operating income, and free cash flow have hit new heights over the last year, making the recent sell-off look like an overreaction. The current economy is night-and-day different from what it was in 2022, or even 2008, for that matter. Many tech companies are growing and have posted multiple quarters of encouraging results.

Meanwhile, Nvidia is at the top of its AI game, responsible for 80% of the AI graphics processing units (GPUs) . The company got a head start in the industry over rivals like AMD and Intel, which allowed it to expand its brand power. Millions of developers have grown so accustomed to Nvidia's CUDA development software accompanying its AI GPUs that many are hesitant to switch to a rival product.

As a result, the company has retained its AI dominance even while its competitors have debuted similar offerings at lower prices. With solid earnings and significant market share, Nvidia is an attractive investment after a sell-off.

Intel

Intel's stock price has plummeted 34% in the last five days, its worst drop in decades. Declines were spurred by economic fears and exaggerated by poor quarterly results.

The company posted its second-quarter earnings on Aug. 1. Revenue fell 1% year over year, missing forecasts by $150 million. Meanwhile, earnings per share of $0.02 fell short of expectations by $0.08.

Poor earnings reflect Intel's hefty investment in restructuring, shifting to a foundry model, and placing a larger emphasis on AI. The company is focusing on the big picture and long-term rewards, suggesting investors should do the same.

Since last year, Intel has made some major changes, unveiling multiple new AI-enabled chips and beginning construction on the first of at least four chip factories in the U.S. Neither of these ventures come cheap, as reflected in its second-quarter losses. However, they could pay off over the next five to ten years.

CEO Pat Gelsinger said in a recent earnings call that increased production on its AI-capable Core Ultra PC chips contributed to poor earnings. But he added that "the AI PC will grow from less than 10% of the market today to greater than 50% in 2026," suggesting it is likely to make up for those losses.

The company is taking a similar approach to manufacturing. Intel has invested billions into opening chip fabs throughout the U.S. as it seeks to become the country's leading AI chip manufacturer. It'll take time, but it could be worth buying the stock cheaply now to hold over the long term.

Is Nvidia or Intel the better AI stock in 2024?

Nvidia and Intel are at vastly different stages of their AI journeys, with one dominating the industry and the other yet to see a return on its investments.

Data by YCharts; PE = price to earnings.

Considering their valuations, neither is a huge bargain. But Nvidia's stock is a better value, with a lower price-to-earnings (P/E) ratio . Meanwhile, its P/E is close to its 10-year average for the metric, while Intel's is far higher than its average.

Intel could be a smart long-term play, but its dismal earnings and a high valuation make Nvidia a more attractive buy right now. Nvidia has an established position in AI and consistent earnings, making it too good to pass up.

Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy .