Since a boom in artificial intelligence (AI) kicked off at the start of 2023, all eyes have been on chipmakers. Nvidia has taken much of the spotlight, snapping up 90% of the AI chip market. However, its success has also spurred interest in rivals like Intel(NASDAQ: INTC) and Advanced Micro Devices(NASDAQ: AMD), which could ride Nvidia's coattails and similarly enjoy significant gains from the expanding sector.
AMD has made promising headway in the industry, with recent quarterly results showing its data center earnings have soared amid increased AI chip sales. Intel has had a more challenging time succeeding in the market, with its focus on the costly foundry industry. However, Intel could be an attractive long-term play and deliver major gains over the next decade as its chip factories become operational.
So, let's compare these chipmakers' businesses and determine which is a better stock for investing in artificial intelligence (AI).
Intel: Considering splitting its foundry and design businesses
Intel's stock price popped 12% between August 29th and 30th. Wall Street rallied after news broke the company was considering splitting its chip manufacturing and design divisions. The company's longtime bankers, Morgan Stanley and Goldman Sachs, are reportedly advising Intel on its options after it released unexpectedly grim second quarter of 2024 earnings in August.
During the period, Intel's revenue fell 1% year over year to $13 billion, missing analysts' forecasts by $150 million. Meanwhile, earnings per share of $0.02 came in $0.08 lower than projected.
It hasn't been easy to be an Intel investor in recent years, with its stock price down 53% since 2019. The company has faced steep earnings declines as it's struggled to keep up with the competition and has been struck by macroeconomic headwinds. Intel has tried to reinvent itself in 2024, pivoting toward AI by unveiling a range of new AI-enabled chips and expanding its foundry business in the U.S. to potentially cash in on the growing need for AI chip manufacturers.
However, recent earnings indicate Intel may have bitten off more than it can chew. The company has excellent prospects over the long term as both of its AI ventures develop, but it could be many years before recent moves pay off.
AMD: Quickly gaining in the AI chip market
While Intel is seemingly facing one hardship after another, AMD is making positive strides in AI. The chipmaker's quarterly free cash flow has soared 81% year-to-date to $439 million, while Intel's has sunk to a negative $3 billion. AMD's growth is mainly due to its heavy investment in AI, which has paid off through soaring chip sales.
The company reported its Q2 2024 earnings on Jul. 30. Revenue increased by 9% year over year to $6 billion, beating Wall Street expectations by $120 million. The quarter proved AI is now AMD's high-earning business by a large margin, with its data center segment accounting for nearly 50% of its total revenue.
Meanwhile, data center sales popped 115% in Q2, thanks to increased demand for its AI graphics processing units (GPUs). The period also delivered a 49% increase in client revenue, significantly increasing central processing unit (CPU) sales.
AMD didn't get the headstart in AI that Nvidia did and has had some catching up to do. However, its latest quarterly results indicate massive potential in the industry and an opportunity to carve out a lucrative position over the long term as it steals market share from the market leader.
Is Intel or AMD the better AI stock?
AMD's stock has risen more than 3,000% over the last decade, while Intel's has fallen 37%. Intel has a promising outlook in AI and could deliver significant gains as it implements its plans. However, there's currently too much uncertainty about its future compared to AMD's.
AMD is more stable financially and boasts a more established role in artificial intelligence than Intel. Alongside recent growth in its data center division, AMD's stock is too good to pass up.
Data by YCharts
Moreover, this chart shows AMD's stock trades at a better value than Intel's. AMD's considerably lower forward price-to-earnings ratio suggests its shares are a bargain compared to Intel's. In addition to a stronger position in AI, AMD is a more reliable investment and a stock worth considering this month for anyone looking to invest in the budding AI market.
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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: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
