In 2023, semiconductor stocks have been on fire, driven by the increasing demand for chips in artificial intelligence (AI) applications. The PHLX Semiconductor Sector index has surged by 45%, far outpacing the S&P 500’s 17% gain this year. Among the key players in this sector, Nvidia (NASDAQ: NVDA) and Intel (NASDAQ: INTC) have also seen substantial gains. Nvidia’s stock has skyrocketed by a staggering 232%, while Intel has posted more modest gains of 38%.
Nvidia’s remarkable performance can be attributed to its pioneering role in AI. On the other hand, Intel has faced challenges due to weak sales in personal computers (PCs) and data centers, although it’s making efforts to establish a presence in the AI chip market. But can Intel truly compete with Nvidia’s AI dominance and offer investors a more cost-effective way to tap into the AI revolution? Let’s explore.
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Intel’s Emergence in the AI Chip Race
Intel has placed a significant focus on its AI strategy, considering AI as one of the five primary growth drivers for the semiconductor market until 2030. This focus aligns with the projected annual growth rate of 29% in the demand for AI chips through 2030, leading to an estimated annual revenue of $304 billion by the end of the forecast period.
As of 2022, the AI chip market was valued at $29 billion, signifying its early growth phase. Intel is already making strides in this arena, with a revenue pipeline exceeding $1 billion for AI chips through 2024. Furthermore, Intel states that the interest in its AI chips is growing, with approximately 25% of its Xeon data center servers now handling AI workloads. Intel aims to leverage this demand by incorporating dedicated AI capabilities into its upcoming Meteor Lake server processors. This move is strategic, as Intel holds a dominant 82% market share in the server processor industry as of Q1 2023.
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Considering the anticipated 22% annual growth in AI server shipments through 2026, Intel stands to boost its AI chip revenue in line with the overall growth in this space, capitalizing on its substantial market share. However, it’s important to note that Intel’s AI revenue pipeline currently accounts for only about 2% of its total business.
Challenges persist for Intel as its second-quarter revenue declined by 15% YoY to $12.9 billion, primarily due to a 12% drop in revenue from its client computing group (CCG), which accounts for 52% of its total revenue. The weak PC sales have been a major hurdle for Intel. While Intel is making progress in AI, it may take some time before it can truly compete with Nvidia in this market.
Nvidia’s Dominance in the AI Chip Market
Intel’s AI revenue pipeline is dwarfed by Nvidia’s existing sales in this field. Nvidia reported $13.5 billion in revenue in the second quarter of fiscal 2024 (ending July 30, 2023), with a record-breaking $10.3 billion of that coming from its data center business, driven by AI.
Nvidia’s data center revenue surged by an impressive 171% compared to the previous year. The guidance for the current quarter suggests that this exceptional growth will persist. Nvidia is actively working on ramping up the supply of its AI-focused graphics cards to meet the high market demand. Demand for Nvidia’s H100 data center graphics processing unit (GPU) is soaring, with waiting times reportedly stretching to six months. With prices starting at $30,000 for the H100, Nvidia is poised to generate substantial revenue, possibly exceeding $16 billion from this hardware alone.
Moreover, Nvidia has introduced its Grace server processors, designed for accelerated computing and AI applications. This move could challenge Intel’s position in the AI server processor market, offering cost-effective alternatives to customers interested in AI applications.
In summary, Nvidia is well ahead of Intel in the AI chip race, which is evident in their financial performance. Nvidia’s revenue is expected to double this year, while Intel’s revenue is anticipated to drop by nearly 17% to $52 billion. Despite Nvidia’s higher valuation at 117 times trailing earnings, its forward earnings multiple of 55 represents a favorable comparison to Intel’s forward earnings multiple of 116. All these factors make it clear that Nvidia is the superior AI stock to consider at present, given its dominant position in the AI market and potential for future growth with new products.
FAQ
1. What is the PHLX Semiconductor Sector index, and why is it relevant to AI stocks?
The PHLX Semiconductor Sector index is a stock market index that tracks the performance of semiconductor companies. It’s relevant to AI stocks because the demand for chips in AI applications has significantly impacted the performance of semiconductor stocks in 2023.
Why has Nvidia’s stock price surged so much in 2023?
Nvidia’s stock has experienced substantial growth due to its pioneering role in artificial intelligence (AI). The company is a leader in providing AI-related technologies and products, which has driven investor confidence and contributed to its stock’s remarkable performance.
What challenges is Intel facing in the AI market?
Intel faces challenges in the AI market due to weaker sales in personal computers (PCs) and data centers, which are crucial revenue sources for the company. While Intel is making efforts to establish a presence in AI, it’s still working to catch up with Nvidia’s dominant position.
How does Intel plan to compete in the AI chip market?
Intel is focusing on adding dedicated AI capabilities to its next-generation Meteor Lake server processors, leveraging its significant share in the server processor market. The company aims to tap into the growing demand for AI servers, which are expected to increase in shipments through 2026.
What is the current size of the AI chip market, and how is it expected to grow?
The AI chip market was worth $29 billion in 2022, and it’s projected to grow at an annual rate of 29% through 2030, reaching an estimated annual revenue of $304 billion by then.
How much revenue does Nvidia generate from AI, and how does it compare to Intel?
In the second quarter of fiscal 2024, Nvidia reported $10.3 billion in revenue from its data center business, primarily driven by AI. This significantly surpasses Intel’s AI revenue, making Nvidia a dominant player in the AI chip market.
What factors should investors consider when choosing between Nvidia and Intel for AI investments?
Investors should weigh factors such as each company’s market position, revenue growth, competitive advantages, and valuations when making a decision. It’s essential to conduct thorough research and consider individual investment goals and risk tolerance.
Sources
Article:- MSN, Bing, Motley Fool, Google
Image:- Google image, Motley fool, ideogram ai
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