Over the last year, increased interest in artificial intelligence (AI) has spotlighted several tech stocks that could enjoy major gains as the industry develops. Chipmaker Advanced Micro Devices (NASDAQ: AMD) has seen its stock soar 150% since the start of 2023, driven primarily by investors’ excitement over AI. AMD’s second-largest market share in graphics processing units (GPUs) has made Wall Street bullish as similar offerings from Nvidia have flown off the shelves amid the increased demand for the high-powered chips.
However, mediocre quarterly results, alongside a soaring share price, have tanked the value of AMD’s stock. The company’s business hasn’t seen a big enough return on its investment in AI, suggesting there could be better options for backing the high-growth industry.
This chart uses price-to-earnings (P/E) ratios to compare the valuations of some of the most prominent names in AI. AMD’s stock is by far the worst value, with a P/E of 238. However, two companies stand out as bargains compared to their peers: Intel (NASDAQ: INTC) and Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG).
These companies have expanding ventures in AI that could majorly pay off over the long term, with one investing in AI chip manufacturing and the other quickly growing in AI software.
So, forget AMD in 2024 and consider buying one of these AI stocks instead.
1. Intel: Delivering growth in multiple areas of its business
Intel investors haven’t had it easy in recent years, with its stock down 35% since 2019. The company was once the biggest name in the chip market, dominating manufacturing and boasting a lucrative partnership with Apple as the leading chip supplier for its Macs. However, trouble keeping up with competitors like AMD and Nvidia caused Intel to fall behind and lose market share.
Yet, sometimes, the best test of a company is how it responds to challenges, and recent developments suggest Intel could come back strong in the coming years. The chipmaker has increased its market share in central processing units (CPUs) for three consecutive quarters. Since the fourth quarter of 2023, Intel’s CPU share has risen from 61% to 64%, while AMD’s has fallen from 36% to 33%.
Moreover, recent earnings from Intel further highlight its gradual improvements. In Q1 2024, the company’s revenue increased by 9% year over year to $13 billion. The company benefited from a 31% rise in client revenue, representing a spike in consumer sales. Meanwhile, its data center and AI segment posted revenue gains of 5%, with operating income hitting $184 million after the company reported losses of $69 million the year before.
Intel is restructuring all areas of its business to prioritize long-term profit growth. The company is refocusing its business model around AI and manufacturing, with plans to build at least four plants in the U.S. and more abroad. Intel wants to become the country’s leading AI chip manufacturer, which could allow it to profit from rising GPU demand throughout the industry.
With positive signs of growth and a bargain stock price, it’s worth considering Intel stock over AMD in 2024.
2. Alphabet: The best-valued way to invest in AI software
Alphabet is home to some of the most widely recognized brands thanks to products like Android, YouTube, and the many offerings under Google. Alphabet’s success has made it the world’s fourth most valuable company, with a market cap above $2 trillion.
The tech giant has proven itself as one of the most reliable long-term investments. This year alone, Alphabet has outperformed many of its rivals in stock growth (as seen in the chart above). Yet, it has the lowest P/E out of these companies, indicating it is trading at the best value. Furthermore, Alphabet has the lowest stock price among these tech companies, potentially making its shares the most accessible.
In addition to trading at a bargain, Alphabet has significant potential in AI. The company was an early investor in the industry, first introducing AI to its search engine in 2001. Then, in 2016, the tech giant became an AI-first company, well ahead of many of its rivals. Its Google DeepMind AI research subsidiary is driving the company’s innovation.
Meanwhile, Alphabet’s recently launched AI model, Gemini, could elevate its entire position in the industry by bringing generative upgrades across its product lineup.
Alphabet likely has a bright future in tech and is just too good to pass up at its current price point, making it a screaming buy in 2024 and a better option than AMD.
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Suzanne Frey, an executive at Alphabet, 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, Apple, Microsoft, and Nvidia. The Motley Fool recommends Intel 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.
Forget AMD in 2024: 2 Artificial Intelligence (AI) Stocks to Buy Instead was originally published by The Motley Fool
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