Nvidia has become everyone's favorite artificial intelligence (AI) stock, but there are other ways to bet on AI without chasing the high-flying GPU leader.
Intel (INTC -1.88%) and Micron Technology (MU -0.52%) are starting to show improving growth as the semiconductor industry emerges from a slump over the last few years. These top chip stocks have hit new highs this year, but their valuations still leave room for a lot more upside.
1. Intel
Intel has found itself in uncharted territory over the last couple of years. Advanced Micro Devices has been whittling away at its lead in the chip market, and the company has fallen behind in the data center as organizations adopt more powerful GPUs for training AI models. But Intel is fighting back. Improving financial performance at the company has sent the stock higher, but it has more room to run over the next few years.
The rebound in the semiconductor industry is great news for Intel because its chips are still found in over 60% of computers. Intel's revenue increased 10% year over year in the fourth quarter of 2023 and should continue to grow as the PC market recovers.
Intel's client computing group reported a revenue boost of 33% year over year in Q4. The growth follows the launch of the Intel Core Ultra mobile processors, which are designed to power new AI experiences for PC users.
AI PCs are a huge growth opportunity. Microsoft has started rolling out its Copilot generative AI assistant for business customers, and a broader rollout to individual consumers could be a key catalyst for long-term expansion for Intel's client computing group.
Intel expects that AI-based PCs will make up 80% of the PC market by 2028. If that projection holds up, the company's recent success with its Core Ultra release suggests it still has the chops to hold its lead in the CPU market and rake in billions of new revenue.
Wall Street analysts expect Intel's earnings per share to reach $2.96 by 2026. If the stock is trading at a market average price-to-earnings (P/E) ratio of 25, the shares could be worth $74, representing upside of 68% over the current price. That should be enough to outperform the S&P 500 index.
2. Micron Technology
AI training requires more than just advanced processors. Companies are also ramping up investment in high-bandwidth memory and solid-state storage solutions to handle the massive data workloads. This puts Micron Technology in a great position for growth.
Micron posted a 23% increase in sales last quarter, and that's just the beginning. The company experienced a slump last year, but revenue is starting to accelerate ahead of what management sees as a multiyear opportunity in serving the AI market.
Micron's high-bandwidth memory product is already sold out for calendar 2024, and the majority of 2025 product has already been allocated.
The company should also benefit from the adoption of AI-based PCs, since it's one of the leading suppliers of dynamic random access memory (DRAM) modules for computers. Management also expects AI-based phones to require more memory content per unit, which is a catalyst.
The leadership team anticipates higher selling prices for memory this year, which should lead to record revenue in fiscal 2025.
Over the next few years, Wall Street analysts see Micron's earnings per share reaching $10.05. Applying Micron's previous average P/E of 23, the stock could be worth $230 by 2026. That is nearly 80% above the current share price, which would be more than enough to outperform the S&P 500's average annual return.
