If Nvidia fails to meet expectations, the company’s stock price could fall.
The Artificial Intelligence (AI) Phenomenon NVIDIA (NVDA -3.22%) Recently overtaken Microsoft Becoming the world’s most valuable company. Valued at more than $3 trillion, Nvidia has seen its AI chip sales explode, generating incredible profits for investors.
Despite Nvidia’s success, it’s clear that the company’s stock price may be in full bubble territory. Nvidia’s stock trades at roughly 40 times sales, far above its valuation at the peak of the dot-com bubble. To justify its stock price in the face of increasing competition, Nvidia will need to maintain sky-high profit margins while continuing its phenomenal growth.
Nvidia’s high valuation makes the stock very risky. For investors looking to get into AI without taking on too much risk, Intel (International Trade Commission 1.53%) and Qualcomm (QCOM -1.36%) Seems like a safer bet.
Someone has to build the AI chips
Intel sells its own AI accelerators, the latest of which is the ultra-powerful Gaudi 3. But the company’s biggest long-term opportunity may be making AI chips for other companies.
Intel has its sights set on the semiconductor foundry market. The company expects to be the world’s second-largest foundry by 2030 and plans to reclaim manufacturing leadership next year with the launch of its Intel 18A process node. Intel recently began mass production of its Intel 3 node, its first advanced process available to foundry customers. The Intel 3 variant targets AI chips and similar applications.
Intel has won more than $15 billion in foundry business to date spanning Intel 3, Intel 18A, advanced packaging services and the mature Intel 16 node. Its most high-profile deal to date is with Microsoft to manufacture unnamed chips on the Intel 18A process, as Microsoft designs its own server central processing units (CPUs) and AI accelerators.
It will take time for Intel to expand its manufacturing capacity, but the company expects its foundry business to break even within a few years because of its fast revenue growth, which will put Intel in a good position to benefit as the AI chip industry becomes more competitive.
About AI PC
If your Windows PC is Intel or Am The era of processors is over. The first batch of Windows laptops with powerful processors from Qualcomm armThe CPUs based on it were launched this month, and the big selling point is that each chip comes with a powerful AI processor, enabling AI features to be built into Windows and other software.
Arm Holdings has big hopes for the PC market. The company believes that within five years, Arm-based PCs will account for more than 50% of the Windows PC market. While this prediction seems optimistic, Arm-based PCs are likely here to stay.
Qualcomm will reportedly no longer be the only player when its exclusivity deal with Microsoft expires this year, but the company is a pioneer in this market and has time to win over consumers with its powerful Snapdragon chips.
It remains to be seen whether the addition of AI capabilities will trigger a significant upgrade cycle for PCs. If it does, Qualcomm-powered PCs could become a viable option for those looking to take advantage of AI-powered features. Qualcomm is already a leader in the smartphone chip market, and entering the PC market would open up an entirely new revenue stream for the company.
For now, NVIDIA has been the biggest winner in AI, but its stock could fall sharply if the extreme expectations priced into its valuation aren’t met. Both Intel and Qualcomm offer investors low-risk ways to get into AI.
Timothy Green owns shares of Intel. The Motley Fool owns shares of and recommends Advanced Micro Devices, Microsoft, NVIDIA, and Qualcomm. The Motley Fool recommends Intel and recommends the following options: buy January 2025 Intel $45 calls, buy January 2026 Microsoft $395 calls, sell August 2024 Intel $35 calls, and sell January 2026 Microsoft $405 calls. The Motley Fool has a disclosure policy.
