There's no denying that Nvidia sells the most powerful artificial intelligence (AI) chips today and dominates the market, holding an 80% share. And the stock represents a solid long-term investment opportunity even though it's soared in the triple digits over the past year. But that doesn't mean it's the best AI buy right now.
In fact, one of Nvidia's rivals -- a player that fell behind in the AI race -- actually represents a more pressing buying opportunity today as it may be ripe for a big turnaround and long-term growth. I'm talking about chipmaker Intel (INTC -1.63%), which recently made two moves that could be game-changers for the company. Let's find out more about this no-brainer AI stock to buy right now.
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A $1 trillion market
First, it's important to note that I don't expect Intel to unseat Nvidia in the graphics processing unit (GPU) market. But the good news is Intel doesn't have to do that to be successful in this market to power AI. Analysts expect the AI market to surpass $1 trillion by the end of the decade, and today, the three chip designers that stand out are Nvidia, Advanced Micro Devices, and Intel.
Considering the size of the market and the fact that AI could play a role in just about every industry from healthcare to automobiles, chip demand may be high enough to drive revenue growth at all three of these players.
Though Intel is the global leader in the central processing unit (CPU) market, chips that power a wide variety of computing operations, the company fell behind in the GPU space. GPUs are known for completing a variety of tasks simultaneously, and originally they powered video games and graphics applications. They still do, but today the GPU's biggest business is powering AI.
Now, let's talk about Intel's two smart moves. Intel late last year announced a new portfolio of exciting AI products, including the Intel Core Ultra mobile processor family -- a product that innovates across areas from compute to graphics and battery life. The company says Intel Core Ultra ushers in the era of the AI personal computer, a highly powerful computer that can handle AI tasks. The company considers this the biggest transformation in the world of PCs since laptops first connected to WiFi 25 years ago.
The latest Xeon processor
The chip giant also announced the latest Xeon processor family, which supercharges AI performance, and announced the arrival in 2024 of the Gaudi 3 AI accelerator for deep learning and large-scale generative AI. Intel predicted that with growing demand in this area, it expects to increase its share of the accelerator market this year.
Second, Intel is making a bet that, of course, comes with a decent amount of risk, but if Intel is successful, it could win big. The company is opening its manufacturing network to others and aims to become the world's second-biggest foundry by 2030. Many companies, such as Nvidia, design chips but don't actually manufacture them and instead turn to foundries for this. Today, the world's biggest manufacturer is Taiwan Semiconductor Manufacturing Co.
Intel already has expertise in the area, long producing its own chips, and now, it will sell these manufacturing services to others. The company said it started last year with one customer for its 18A process but won three more by the end of the year as well as five advanced-packaging contracts. For the production of its own chips, Intel will become a customer of its foundry -- just like other chip designers.
U.S. government support for Intel
The U.S. government is supportive of Intel's initiative, as it would reduce U.S. dependence on foreign manufacturers -- and the government recently proposed as much as $8.5 billion in direct funding of Intel's semiconductor-manufacturing projects in four states. Still, the project represents an enormous investment for Intel, with the company pledging to invest $100 billion over five years in U.S. chipmaking capacity.
Now, let's consider Intel's valuation. The stock trades for 27 times forward-earnings estimates, a reasonable price to pay considering analysts' estimates for double-digit annual growth over the coming five years. If Intel wins its bets on AI and manufacturing, it could see revenue growth truly take off over time. That's why, for the long-term AI growth investor, Intel makes a no-brainer buy right now.
