All eyes have been on Nvidia (NVDA 1.56%) over the last year, as its stock soared more than 200%. The company massively profited from a boom in artificial intelligence (AI) as its graphics processing units (GPUs) have become the go-to for developers worldwide. In fact, Nvidia's meteoric rise saw it briefly overtake Apple as the world's second-most-valuable company on June 5 when its market cap hit $3 trillion.
As the AI market develops, Nvidia will likely have much to offer investors in the coming years. However, while its recent rise has benefited current investors, it has made the stock fundamentally more expensive.
Data by YCharts
This chart uses forward price-to-earnings (P/E) and price-to-sales to show Nvidia's stock offers less value than two other companies active in AI, Intel (INTC +1.14%) and Microsoft (MSFT 1.57%). As a result, if you're looking for a way to invest in the budding AI market, it could be worth considering one of these options over Nvidia to get the most bang for your buck.
So, forget Nvidia and consider investing in one of these AI stocks now.
1. Intel
At the Computex tech conference in Taipei on June 4, Intel CEO Pat Gelsinger said, "We want to build everybody's chips, everybody's AI chips. We want them to be built leveraging the U.S. factories."
Gelsinger's comments come as the company is in the process of restructuring its entire business around manufacturing. Intel announced last year it would transition to a foundry model in an effort to regain its position as the world's leading chipmaker, having been overtaken by Taiwan Semiconductor Manufacturing and Samsung since 2017.
Intel's plan involves building at least four factories across the U.S. and will benefit from President Biden's CHIPS Act, an initiative created to expand the U.S.'s manufacturing capabilities. Intel will receive $8.5 billion to aid in its foundry expansion, more than Samsung or TSMC.
NASDAQ: INTC
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Over the last year, Intel has been in steep competition with Nvidia and Advanced Micro Devices in AI. Each has AI accelerators on the market and is striving to attract new clients. However, Intel's foundry model could set it apart from its rivals. While Nvidia and AMD are focused on design, Intel could enjoy significant gains in the coming years as chip demand grows and it becomes the U.S.' primary manufacturer.
Intel still has a long way to go before dominating AI. However, its free cash flow increased by $2 billion from January to May, suggesting its business is heading in the right direction. As a result, Intel's stock is worth considering right now.
2. Microsoft
Microsoft's stock is trading at 36 times its earnings, so it's far from the biggest bargain on Wall Street. However, it is a better value than Nvidia and could have more growth potential in AI over the long term, thanks to its massive user base.
Homegrown brands like Windows, Office, Xbox, Azure, and LinkedIn attract billions of users and have made Microsoft a household name worldwide. Thousands of businesses rely on the company's offerings for productivity, giving it almost endless opportunities to showcase its AI products.
NASDAQ: MSFT
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Moreover, Microsoft has access to some of the most advanced AI models. The company is the largest investor in ChatGPT developer OpenAI, granting it exclusive access to much of its AI technology. Over the last year, Microsoft used OpenAI's products to introduce new AI features across its product lineup, including integrating parts of ChatGPT into its search engine Bing, expanding its AI services on Azure, and introducing generative features in its Office productivity suite.
The potency of Microsoft's products and OpenAI's technology could prove a powerful combination, making it the go-to for consumers and businesses looking to elevate their workflow with AI.
Data by YCharts
Microsoft's stock may be trading at a premium, but it is easily one of AI's most reliable investment options. Microsoft outperforms many AI-driven companies in free cash flow, suggesting it could be best equipped to expand in the industry. Meanwhile, the company's stock has soared 237% over the last five years, significantly outperforming the S&P 500's 89% increase.
Microsoft posted its third quarter of 2024 (ending in March) earnings on April 25. Revenue rose 17% year over year and beat analysts' forecasts by more than $1 billion. The company enjoyed solid gains in its productivity and cloud segments, indicating positive growth from AI.
Microsoft has a promising outlook that you won't want to miss out on and is worth considering over Nvidia this June.
