Intel(NASDAQ: INTC) was one of the biggest victims of a recent tech sell-off, with its share price down 42% over the last month. Fears of a recession caused doubt among tech investors, triggering a dip for dozens of companies' stocks. Market uncertainty combined with weaker-than-expected quarterly earnings from Intel triggered a significant decline in its shares.
Usually, such a dramatic sell-off would produce a bargain stock price. However, the chart below shows Intel's forward price-to-earnings (P/E) ratio remains considerably higher than its two biggest chip competitors, Nvidia(NASDAQ: NVDA) and Advanced Micro Devices(NASDAQ: AMD).
Data by YCharts. PE Ratio = price-to-earnings ratio.
This chart shows that not only does Intel have the highest forward P/E among these companies, but its figure for the metric is also well above its average since 2022. Meanwhile, AMD's and Nvidia's forward P/Es are relatively close to their averages, making them a bargain compared to Intel.
Moreover, recent earnings suggest Intel's position in the budding artificial intelligence (AI) market is less secure than its rivals. In the second quarter of 2024, the company missed earnings-per-share estimates by $0.08 and revenue by $150 million. Recent challenges have seen Intel's quarterly free cash flow dip nearly 5,000% over the last year to a negative $3 billion.
Meanwhile, Nvidia and AMD have arguably more established roles in AI and have delivered promising financial growth thanks to the expanding industry. So, forget Intel and consider these better AI stocks after a sell-off.
1. Nvidia
Nvidia's stock dipped about 10% over the last 30 days amid a pullback in tech. The worst declines had its share price down 25% between July 10 and Aug. 5. However, a recovery appears to be underway, suggesting investing sooner rather than later might be best.
The company's share price is up 18% over the last week alone, adding more than $420 billion in market value. The surge aligns with Nvidia's recent growth trajectory and its potent role in AI.
Nvidia accounts for an estimated 70% to 95% of AI accelerators thanks to the success of its graphics processing units (GPUs). These chips are crucial for building and running AI models because they are capable of completing multiple tasks at once. As a result, GPUs can handle the heavy workloads involved in developing large language models like OpenAI's ChatGPT and other AI networks.
The company's powerful role in AI has made it the go-to chip supplier for countless organizations. Some of its biggest customers include tech giants like Amazon Web Services (AWS), Meta Platforms, Microsoft, and Alphabet. Meanwhile, the company supplies its chips for consumer-focused products like Tesla's self-driving technology and Nintendo's Switch console.
Additionally, Nvidia recently partnered with California in an initiative backed by Gov. Gavin Newsom to train its residents on AI technology. CEO Jensen Huang said the collaboration will promote job creation and "train 100,000 students, college faculty, developers, and data scientists to harness this technology."
Nvidia will post its Q2 of fiscal 2025 earnings on Aug. 28. Quarterly revenue and operating income are up 44% and 63%, respectively, in the last 12 months, with the company consistently beating expectations. The coming earnings release will likely follow recent trends, making Nvidia's stock a compelling buy after a sell-off and a better option than Intel.
2. Advanced Micro Devices
After a market downturn, AMD's share price is down 22% in the last month. However, consistent financial growth and an expanding position in AI make its stock too good to ignore.
The chipmaker reported its Q2 2024 earnings at the end of last month, with revenue rising 9% year over year and beating Wall Street forecasts by $120 million. AMD delivered a massive win in its AI-focused data center segment, which saw revenue increase by a record 115% year over year and operating income rise more than 400%.
AMD made promising headway in AI in Q2 2024, as increased AI GPU sales led to impressive financial growth. Meanwhile, the quarter also saw the company hit its highest server central processing unit (CPU) market share in decades. Mercury Research shows AMD's server share increased by 5.6 points since 2023, achieving a 24.1% share.
Growth in server CPUs shows the company gaining on Intel's position in the market. Intel has dominated CPUs for years, with AMD gradually chipping away at its market share. Yet, AMD has managed to make the business far more lucrative. As Tom's Hardware pointed out, "While Intel earned $3.0 billion selling 75.9% of data center CPUs (in terms of units), AMD earned $2.8 billion selling 24.1% of server CPUs (in terms of units)." The disparity is staggering and only strengthens the bullish argument for AMD's stock.
AMD's quarterly free cash flow has risen 81% year to date to $439 million, while Intel's has dipped to a negative $3 billion. The figures suggest AMD is more financially stable, with more cash reserves to keep expanding its business. Alongside a better-valued stock, AMD is a no-brainer AI stock right now.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends Intel and Nintendo and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short August 2024 $35 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
