Nvidia vs. Intel: Two Semiconductor Giants on Diverging Paths

Nvidia (NASDAQ:NVDA) has emerged as a leader in the AI surge, with its stock skyrocketing by over 180% this year, bringing its valuation close to $3.4 trillion. Driven by intense demand for its GPUs, Nvidia’s revenues are set to more than double this fiscal year. In contrast, Intel (NASDAQ:INTC) struggles this year, with its stock down about 50%, leading to a market cap of only $100 billion and overall revenue contraction expected. This disparity raises the question: is now the right time to reconsider which company is leading the AI charge?

The markets often focus on short-term trends, which can skew their long-term predictions. In Nvidia’s case, investors are betting that the demand for AI accelerators will persist, keeping margins and growth steady. Conversely, Intel’s setbacks in CPU market share and its foundry business have left investors skeptical about its future. Yet, history shows that markets are cyclical, especially in the semiconductor industry. Movements away from Nvidia in favor of Intel might be a savvy decision right now. Let’s explore the reasons.

Nvidia’s AI Growth May Be Peaking

Over the past two years, companies have poured large sums into AI model development. Training these complex models often requires immense computing power, positioning Nvidia as the primary beneficiary with its efficient GPUs. This trend is reflected in Nvidia’s revenue projections, with expected sales rising from $27 billion in FY’23 to nearly $130 billion in FY’25. However, the AI environment appears to be shifting. As models become larger, the incremental performance improvements could lessen. Additionally, as high-quality data becomes harder to find, there may be a transition away from broad AI models to smaller, specialized ones—potentially reducing the demand for Nvidia’s advanced GPUs. This explosive growth Nvidia has enjoyed could be front-loaded, suggesting slower future growth ahead.

Chip demand in AI may also pivot from training to inference. Inference—where models generate outputs—requires less computational strength and could allow alternatives to Nvidia’s chips to gain traction. While Nvidia is expected to remain dominant in this area, with inferencing being around 40% of its data center chip demand, companies like AMD and even Intel could gain some market share.

During the early days of generative AI, many big tech firms rushed to invest heavily in GPUs, driven by a “fear of missing out” without fully considering costs and potential returns. This behavior inflated pricing power for Nvidia, which has boasted margins exceeding 50% in recent quarters. However, as companies and their investors seek greater returns, they may start scrutinizing AI expenditures, likely pressuring Nvidia’s margins. Additionally, Intel and AMD are not the only challengers; major clients like Google and Amazon are investing in their own AI chips. For instance, Amazon recently announced the development of an AI ultracluster, a massive AI supercomputer utilizing proprietary Trainium chipsets, further threatening Nvidia’s standing in the market.

Intel’s Foundry Business Poised for Revival

Amidst the AI excitement surrounding Nvidia, skepticism around Intel has primarily stemmed from its struggling foundry service, which faced a hefty $7 billion operating loss in 2023 and a competitive challenge from TSMC. However, there is potential for a turnaround with its latest 18A process node. This technology, featuring advanced transistors and enhanced power delivery, promises substantial improvements in performance and efficiency. Intel has secured contracts with major firms, including Amazon and Microsoft, for custom chip designs using this new process, expecting 18A designs to enter production by 2025. Successfully executing this transition could significantly change the narrative for Intel’s foundry business. For a deeper analysis, see 2025 Could Be Intel Stock’s Comeback Year.

Additionally, Intel’s large U.S. manufacturing capacity may gain renewed focus if Donald Trump returns to the presidency in 2025. His administration’s intent to promote domestic production and lessen reliance on foreign supply chains may lead to favorable policies for Intel, including potential tariffs on imported chips or incentives for local manufacturing. As the only U.S.-based semiconductor firm that designs and produces cutting-edge chips, Intel stands to benefit from increased federal contracts.

Intel Might Present a Better Investment Opportunity

Intel’s stock is currently trading at an appealing valuation of just 23 times consensus earnings expected for 2025. This projection is notably low compared to its historical performance, given that Intel reported earnings close to $2 per share in 2022 and over $5 per share in 2021 and 2020. If Intel’s earnings recover to past levels, the stock price could similarly climb. The company anticipates a return to revenue growth in 2024, with a projected 6% increase and multiple developments in both the chip and foundry sectors. Innovations in its CPU range, like the Lunar Lake and Arrow Lake chips, position Intel favorably for a rebound in both the PC and server markets, while its Gaudi 2 and upcoming Gaudi 3 AI accelerators may provide additional uplift in the AI segment.

Nvidia trades at a high multiple of 48 times expected FY’25 earnings. Despite impressive recent growth, doubts linger about whether this will continue. With the risks mentioned earlier, Nvidia’s future growth and profit margins may face challenges, putting its earnings at risk. As the AI space evolves, investors could find better risk-adjusted returns by pivoting from Nvidia to undervalued players like Intel. Based on these factors, Intel’s trajectory appears to be on an upward path, while Nvidia could face a more complicated future.

[1] Returns as of 12/4/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.