Things are in flux, but there’s a clear winner in this matchup.
Chip companies have been the primary beneficiaries of a recent artificial intelligence (AI) boom. The industry has exploded since November 2022, when OpenAI launched ChatGPT, an advanced chatbot made possible by high-performance chips like graphics processing units (GPUs).
As a leader in GPUs, Nvidia (NVDA -1.66%) has massively profited from increased demand for the chips. As I write this, its stock has climbed 642% since the start of last year, alongside soaring earnings as it achieved a majority market share in AI GPUs. Nvidia could have a lot more to offer investors as the industry develops.
However, there is also an argument to be made for investing in a less established AI chip stock like Intel (INTC -3.33%), which could have room to run. The company has had a challenging few years, with its share price down 60% since 2021. However, Intel is making moves that could secure a powerful role in AI over the long term.
Let’s examine these tech giants and determine whether Nvidia or Intel is the better stock to invest in the AI market.
Nvidia: Dominating one of the fastest-growing industries
At the start of 2023, Nvidia’s market cap was $359 billion and it is now at just under $3 trillion. The company has enjoyed significant gains as its GPUs have become the go-to for AI developers worldwide.
Nvidia released its second-quarter fiscal 2025 earnings last week, with revenue increasing by 122% year over year. The period beat analysts’ sales expectations by over $1 billion, while earnings per share outperformed by $0.04. Overall, it was an immensely positive quarter for Nvidia, which saw double- or triple-digit growth in each of its five segments. Its data center division, on its own, delivered revenue growth of 154% thanks to increased AI GPU sales.
Yet glowing quarterly results haven’t done much to rally investors. Nvidia’s stock has dropped since the earnings release on Aug. 28. Geopolitical concerns, economic uncertainty, doubts about Nvidia’s valuation, and worry about delays in the launch of Nvidia’s Blackwell processors have played a part in causing investors to withdraw. However, the company’s nearly unrivaled dominance in AI and consistent earnings growth will likely make this dip temporary. Meanwhile, now could be an excellent opportunity to buy the stock at one of its best-valued positions in months.
Nvidia’s free cash flow is up 167% over the last 12 months to $47 billion, massively outperforming its competitors. Nvidia has the brand power and financial resources to retain its dominance in AI and keep pushing its technology forward, making it one of the most reliable ways to invest in the industry.
Intel: An uncertain future
After years of declining earnings and market share in the chip industry, Intel is a little worse for wear. The company’s quarterly revenue and operating income are down 33% and 119% over the past three years, with free cash flow tumbling 162%. As a result, Intel is planting seeds throughout tech in an effort to reinvent itself.
INTC data by YCharts
In AI, the chipmaker has revealed multiple new AI-enabled chips to better compete with Nvidia and AMD. Meanwhile, Intel has made a considerable push into manufacturing, hoping to eventually become the world’s biggest AI chip fabricator. However, these ventures haven’t come cheap, hurting Intel’s financial position and profitability.
Intel’s stock popped 9% on Aug. 30 when a Bloomberg report said the company was in early discussions to potentially split its chip design and manufacturing divisions. The move could give both sides a better opportunity to thrive, with Intel’s recent earnings indicating it may have bitten off more than it could chew.
Intel was once a king in the chip market, with leading market shares in processors and manufacturing. However, it has struggled to keep up with competitors over the last decade. Recently announced chips have shown promising progress, and coming Ohio factories could lead to a lucrative role in AI chip production. However, it could take decades for Intel to deliver significant stock growth.
Is Nvidia or Intel the better stock to invest in artificial intelligence?
Nvidia and Intel are at wildly different stages of their journeys into AI. Nvidia has secured a spot at the top, with an estimated market share in AI GPUs of maybe up to 95%. Meanwhile, Intel has yet to see significant returns on its hefty investment in the industry. Intel may come back strong over the long term, but its future is too uncertain for me to recommend its stock.
Alternatively, Nvidia has one of the most established positions in AIÂ and the cash to continue thriving in the industry.
Moreover, the chart below shows that despite Intel’s plunging stock price in recent years, it still doesn’t offer much value. Nvidia’s lower forward price-to-earnings ratio (P/E) indicates its stock is trading at a better value than Intel’s. Meanwhile, Nvidia’s far higher free cash flow highlights the reliability of its business, making its stock a no-brainer way to invest in AI right now.
Data by YCharts
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.