While chip designer Nvidia‘s shares have soared in recent times, chip giant Intel (NASDAQ: INTC) hasn’t fared so well. And much of this story has to do with artificial intelligence (AI). Nvidia has poured its resources into AI, and the company today dominates the AI chip market. Intel fell behind in the AI race, and that has weighed on earnings and share performance.
But this doesn’t mean we should forget about this chip powerhouse. In fact, Intel may make a pretty good buy today as it faces a crucial moment of transition — one that could kick-start growth. The company has two particular projects that might be game changers for earnings over the long haul. Intel has put a big focus on AI with a whole new wave of product releases, and the company is opening up its manufacturing to others — to become the only U.S.-based chip producer.
Does this make Intel, down about 40% this year, a once-in-a-generation investment opportunity? Let’s find out.
The earliest AI growth opportunity
As mentioned, Intel lost out on the earliest AI revenue growth opportunity, and Nvidia secured the top position with its high-powered graphics processing units (GPUs). But the good news is the AI growth opportunity is likely to last quite some time, since we’re in the early stages of this story — and that offers Intel the chance to carve out market share at this point and down the road.
Late last year, Intel unveiled a portfolio of AI products, including the Intel Core Ultra mobile processing family. This innovation launches the era of the AI personal computer, a PC built to smoothly handle AI tasks. Intel said that since this release, more than 5 million AI PCs have been shipped, and the company expects to beat its earlier forecast for the shipment of 40 million AI PCs this year.
And recently Intel announced its Gaudi 3 AI accelerator, which it says can beat Nvidia’s top chip, the H100, in inferencing and power efficiency.
Of course, Nvidia and other chip designers continue to innovate — and Nvidia’s new Blackwell architecture and top-performing chip, set to launch later this year, are likely to surpass the performance of rivals. But that’s OK because, due to the vast range of AI projects out there and raging chip demand, there should be enough business for many chipmakers to succeed. Companies from Nvidia to cloud provider Oracle and equipment maker Super Micro Computer all have spoken of record AI demand in recent times.
Intel’s foundry business
So, it’s clear AI could offer Intel’s earnings a lift. And the company’s foundry business should do the same — though this won’t happen overnight, it could be worth the wait. Intel is investing heavily right now to ramp up its foundry operations, aiming to become the world’s second-largest foundry by 2030.
As part of this, Intel is on the path toward its goal of developing five new process technology nodes in four years — aiming to fit more and more power on to each chip. The smaller the node, the greater the number of transistors that can be crammed onto one chip — this improves performance and cuts down on energy use and costs.
Intel now is in the process of setting up its 18A node and has said it’s signed up a total of six customers so far. The latest is a leader in the defense industry, and this customer chose Intel not only for its technology but also for its location. This presence in the U.S. could win over many North American customers aiming for a secure supply base close to home.
Though Intel is going up against giant Taiwan Semiconductor, the market is massive and growing — Intel says today’s $110 billion foundry market should reach $240 billion by the end of the decade. This, Intel’s progress so far, and its presence in North America all are green lights for the company moving forward.
Meanwhile, the stock is only trading for 27 times forward earnings estimates, which looks very reasonable considering future prospects.
How often do we get a chance to buy shares of a future chip manufacturing leader — and at this price? Not often. This and all the points I mentioned makes Intel a once-in-a-generation investment opportunity right now.
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Adria Cimino has positions in Oracle. The Motley Fool has positions in and recommends Nvidia, Oracle, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
Down 40%, Is Intel a Once-in-a-Generation Investment Opportunity? was originally published by The Motley Fool
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