Intel (NASDAQ:INTC) and NVIDIA (NASDAQ:NVDA) are titans of the same semiconductor industry, born a generation apart. As in all human endeavors, the only constant in business is change, and Intel and NVIDIA find themselves today at different stages of their corporate life cycles.

Thanks to coming adoption of technologies such as self-driving cars and artificial-intelligence (AI) software, NVIDIA has seen demand for its graphics chips move from a niche into the mainstream. On the other hand, Intel roared to global dominance during the rise of PCs and mainframe servers, but it has struggled to tap into more recent growth markets such as mobile computing, deep learning, and the like.

So which is the better stock for you to buy today: Intel or NVIDIA? Let's examine three different aspects for NVIDIA and Intel to determine which companies' shares appear more attractive today.

Financial fortitude

Those same life-cycle differences reveal themselves in assessing the financial strength of NVIDIA and Intel. Look at these four important metrics of liquidity and solvency for both companies.

CompanyCash and InvestmentsDebtCash From OperationsCurrent Ratio
NVIDIA $6.8 billion $2.8 billion $1.7 billion 4.7
Intel $14.9 billion $25.2 billion $21.8 billion 1.7

Data sources: NVIDA and Intel investor relations; Yahoo! Finance. 

NVIDIA easily beats Intel in terms of near-term liquidity -- as evidenced by its current ratio -- and in terms of net debt, which is just a fancy accounting term for cash and equivalents minus debt. That being said, Intel's cash flow-generation capabilities are staggering. Though $18.4 billion of its debt will mature in 2022 or later, Intel could easily erase the majority of its leverage in a single year, even after subtracting the $9.6 billion it spent on capital expenditures in 2016.

Intel is also an example of a company that uses debt, or a leveraged capital structure, as a source of competitive advantage. It's one of the few semiconductor companies that also owns its chip fabrication plants; NVIDIA outsources its fab to a consortium of partners including Taiwan Semiconductor, Samsung, and more. Operating large fixed assets such as semiconductor manufacturing plants requires plenty of capital, which explains Intel's use of ample leverage. Either way, both companies are in fine financial shape, given their respective strategies, so let's call this one a tie and move on.

Winner: Tie.

Circuit board with a semiconductor attached

Image source: Getty Images.

Durable competitive advantages

NVIDIA and Intel each enjoy meaningful competitive advantages in their respective areas of the global semiconductor market.

Sources estimate Intel controls 87% of the PC CPU market and 95% the server CPU market, although the exact numbers aren't as important as knowing that Intel dominates the global PC and data center microprocessor markets, and for a predictable reason: Intel's longtime performance advantage over the competition -- namely, Advanced Micro Devices (NASDAQ:AMD) -- has allowed the company to charge higher prices per unit for its chips.

Intel plows an aggressive portion of its profits back into its research and development, which has, in turn, allowed it to maintain the performance advantages of its chips. Barring execution risks, which have been a concern from time to time, this long-standing trend has served as a virtuous cycle that has allowed Intel to dominate its core markets and consistently produce above-average profits for its shareholders.

The dollar values involved help flesh this dynamic out a bit more. In the past three years, AMD's revenue has totaled $4.2 billion in 2016, $3.9 billion in 2015, and $5.5 billion in 2014. In contrast, Intel's research-and-development budget alone has totaled $12.7 billion, $12.1 billion, and $11.5 billion over the same period. This kind of structural advantage is incredibly difficult to overcome.  

NVIDIA's competitive advantages are more technological than structural at the moment. Because of its long-standing place as the creator graphics computing, on which it still focuses, NVIDIA's chips have generally been the best of breed in each of the graphics processing applications its products serve. The company pressed that advantage with last year's debut of its Pascal architecture, around which it launched a number of new chips.

Better still, NVIDIA has used its advantage to help consolidate early leads in core growth markets such as AI computing platforms and driverless cars. In recent years, NVIDIA has become the GPU supplier to the AI efforts at Microsoft, Facebook, Amazon.comAlphabet, and Apple, to name a few. Much has also been made of NVIDIA's potential in self-driving cars, where it supplies the graphics chips that power the autonomous-vehicle efforts of FordTesla, Volkswagen, Honda, and many more. Both of these industries figure to offer substantial growth opportunities over the coming decade, and NVIDIA's place as the go-to supplier to support these emerging technologies speaks to their compelling value proposition.

Winner: NVIDIA.


The way the market is pricing Intel and NVIDIA shares should come as little surprise, given what we just learned about the outlook for their businesses. Here's a snapshot of three of the most commonly used valuation metrics for Intel and NVIDIA.

CompanyP/EForward P/EEV/EBITDA
NVIDIA 38.3  29.5 23.6
Intel 16.9  12.3 7.8

Data source: Yahoo! Finance. 

Both companies also pay dividends: Intel shares currently yield 2.9%; NVIDIA, a mere 0.5%.

As for which stock appears the more attractively valued, I think both companies appear reasonably valued, given their respective growth outlooks. The multiple trends fueling NVIDIA's growth should support its earnings growth for arguably a decade or more, so its sky-high valuation shouldn't be a deterrent for investors with a similarly long time horizon.

As more of a mature company, Intel will have its investment outlook driven by its ability to grow its EPS and return excess capital to shareholders. Its fantastic economics should allow it to do so, but it's hard to get excited about a company that analysts see growing sales just 0.9% this year and 2% in 2018. So in terms of which company is more appropriately valued, I think both companies trade near prices that seem fair.

Winner: Tie.

And the winner is... NVIDIA by a nose

Both companies present interesting value propositions to investors today. Intel offers a mix of profitability and income at a fairly discounted price, which could prove compelling to more conservative investors. However, many of NVIDIA's growth markets are in their early stages, which makes it the more attractive stock to own over the long term.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.