All eyes have been on the artificial intelligence (AI) market over the last year. The launch of OpenAI’s ChatGPT at the end of 2022 reinvigorated interest in the technology and forced many to rethink what they thought was currently possible with AI. Advances in the generative software could boost countless industries, from self-driving cars to e-commerce, consumer products, cloud computing, and more.
A boom in AI has been a crucial growth driver in the Nasdaq-100 Technology Sector‘s 33% rise over the last 12 months. Dozens of AI-driven tech companies have enjoyed solid gains thanks to AI. However, the market appears to be nowhere near hitting its ceiling, suggesting it’s not too late to make a long-term investment in the industry.
Chip stocks like Nvidia (NASDAQ: NVDA) and Intel (NASDAQ: INTC) are attractive options, with both companies developing the hardware that makes AI possible. These tech giants could have much to offer investors in the coming years as chip demand rises and the AI market develops.
Here are two AI stocks to buy and hold for great long-term potential.
1. Nvidia
Shares in Nvidia have soared more than 210% since last June. The company has rallied investors by achieving a leading market share in AI graphics processing units (GPUs), the chips used to run and train AI models.
As a result, Nvidia’s stock is trading at a premium, with a forward price-to-earnings (P/E) ratio of about 44. However, that figure doesn’t necessarily tell the whole story.
First, Nvidia’s forward P/E is lower than the same metric for its biggest rival, Advanced Micro Devices, which has a forward P/E of 48. The difference indicates Nvidia’s stock is trading at a better value despite delivering significantly more stock growth than AMD over the last year.
Additionally, even with Nvidia’s meteoric rise, the company’s stock has actually increased in value since 2021. This chart shows Nvidia’s forward P/E and price/earnings to growth (PEG) ratio have plunged, indicating the company’s stock could be trading at one of its best values in years. Now could be the best time to invest in Nvidia.
However, it will be crucial to approach this stock with a long-term mindset. Nvidia has delivered multiple quarters of record earnings, posting revenue growth of 262% in its first quarter of fiscal 2025 (ending April 2024). Yet Nvidia’s high forward P/E suggests some of its projected financial growth could already be priced into its shares to a point. But holding over many years will likely mitigate this.
Nvidia has an estimated 70% to 95% market share in AI chips. The company has become the go-to chip supplier for AI developers worldwide, illustrating dominance that will likely prove challenging for rivals like AMD to overcome.
As a result, Nvidia could have much more to offer over the long term, and it remains an AI stock worth investing in right now.
2. Intel
Intel’s inclusion on this list might have you wondering why you should consider having two chipmakers in your portfolio. However, recent restructuring means Intel operates in a vastly different part of the chip market to Nvidia and could have equal, if not more, growth potential than its AI peers.
While Nvidia is focused on chip design, Intel is transitioning its business to a foundry model. The company has plans to build chip manufacturing plants throughout the U.S. So, as chip demand is soaring, Intel could become the nation’s go-to chip manufacturer, profiting from the entire AI market’s growth.
In May, CEO Pat Gelsinger said he expects Intel’s coming Ohio plant to become the “AI systems fab for the nation.” Gelsinger then reiterated the sentiment at a conference in Taipei on June 4, saying: “We want to build everybody’s chips, everybody’s AI chips. We want them to be built leveraging the U.S. factories.”
Intel is going full force into manufacturing, which could significantly pay off over the long term. However, a foundry model isn’t cheap and requires heavy investment upfront, which is why most tech companies prefer to outsource their manufacturing. As a result, it will take time for Intel to see a return on its investment.
However, with a forward P/E of 28, Intel is potentially one of the best-valued stocks in AI. The company’s forward P/E is considerably lower than fellow chipmakers AMD or Nvidia, suggesting that now is an excellent time to make a long-term investment in Intel.
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Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.
2 Artificial Intelligence (AI) Stocks to Buy and Hold for Great Long-Term Potential was originally published by The Motley Fool
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