Artificial intelligence (AI) stocks were the toast of Wall Street last year. The segment was one of the biggest growth drivers in the Nasdaq Composite's 43% rise in 2023, with countless companies benefiting from increased interest in AI.
However, data from Grand View Research suggests the sector is just getting started. The AI market is projected to expand at a compound annual growth rate (CAGR) of 37% through 2030, which would see it exceed a $1 trillion valuation before the end of the decade. So, even stocks that reached new heights last year could still have much to offer new investors.
Nvidia (NVDA 0.87%) and Intel (INTC +2.59%) are two attractive options, with both companies developing the hardware necessary for training and running AI models. These companies are at considerably different stages of their AI journeys, with one dominating the industry and the other just starting out.
As a result, it's worth asking whether it's better to invest in an established AI stock or one with possibly more room for growth. Let's take a look at whether Nvidia or Intel is the better AI stock this January.
Nvidia
Nvidia's business exploded in 2023, with its stock up more than 245% since last January. The company's years of dominance in graphics processing units (GPUs) allowed it to get a head start in AI as its chips became the preferred hardware for developers everywhere.
While chip rivals like Advanced Micro Devices and Intel have vested interests in the GPU sector, they have focused primarily on fighting over share of the central processing unit (CPU) market. This has allowed Nvidia a clear path to dominance in GPUs, perfectly positioning it to thrive amid an AI boom.
NASDAQ: NVDA
Key Data Points
In its third quarter of fiscal 2024 (which ended October 2023), Nvidia posted revenue growth of 206% year over year, hitting over $18 billion. Meanwhile, operating income soared 1,600% to $10 billion. Much of the quarter's growth was owed to a 279% spike in data center revenue, reflecting increased sales of AI GPUs.
Nvidia will have to contend with a more competitive chip market this year as AMD and Intel begin shipping their respective GPUs. However, Nvidia has a major lead that will be challenging to overcome.
Additionally, with the market expanding at a CAGR of 37%, there may be room for Nvidia to retain its dominance as the market welcomes newcomers.
Intel
Data by YCharts
Intel hasn't had it easy in recent years. This chart shows its revenue, operating income, and free cash flow have plunged since 2020.
The company enjoyed years of almost unrivaled dominance in CPUs, which saw it grow complacent as its technology started to stagnate. In 2020, Apple acted on years of frustration with Intel's chips, ending a 15-year partnership in favor of chips developed in-house. Meanwhile, AMD's powerful line of Ryzen CPUs has seen the company consistently steal market share from Intel. Since the first quarter of 2017, Intel's share of the CPU market has dwindled from 82% to 61% in Q4 2023.
NASDAQ: INTC
Key Data Points
However, recent headwinds have seemingly put Intel back on a growth path. The company ventured into the desktop GPU market for the first time last year and announced a range of new AI chips this past December. The soon-to-be-released hardware is designed to challenge Nvidia's hardware and could offer the company significant revenue gains over the next year.
Additionally, Intel's finances seem to be on the right track. Despite an 8% revenue decline in Q3 2023, operating income was up 43% year over year. Its data center and AI segment also hit $71 million in operating income after posting losses of $139 million in the year-ago quarter.
Intel has a promising long-term outlook that is made stronger by the prospects of AI.
Is Nvidia or Intel the better artificial intelligence (AI) stock?
Nvidia and Intel are two compelling ways to back the rapidly expanding AI market. However, EPS estimates suggest Nvidia might just be the better bet over the next two fiscal years and possibly beyond.
Data by YCharts
These charts show Nvidia's earnings could hit $24 per share over the next two fiscal years, while Intel's may achieve nearly $3 per share. Multiplying those figures by their respective forward price-to-earnings ratios (Nvidia's 42 and Intel's 25) yields a stock price of $1,008 for Nvidia and $68 for Intel.
If projections are correct, Nvidia's stock would rise 96% from its current position within two years, while Intel's would increase 42%.
Alongside its more established position in AI, Nvidia is the clear winner here. Its projected growth is through the roof, making it the better AI stock right now and a no-brainer investment.
