Sell ​​Nvidia and buy Intel stock?

Nvidia is a symbol of the AI ​​boom, with its stock price soaring more than 180% this year to a valuation of nearly $3.4 trillion. NVIDIA’s revenue is expected to more than double this fiscal year as demand for GPUs, which have become the de facto chip for AI applications, soars. In contrast, Intel stock had a tough year. The company’s stock price remains down about 50% since the beginning of the year, and its market capitalization is just $100 billion. Intel’s revenue is expected to shrink this year. But here’s the twist. This may be the right time to rethink AI leadership. why is that?

Markets are often short-sighted and tend to extrapolate short-term trends into the long-term. For Nvidia, we believe demand for AI accelerators will be sustained and Nvidia’s margins and growth rates will remain strong. On the other hand, Intel’s declining market share in the CPU space and struggles in its foundry business have made investors pessimistic about Intel’s future. But almost everything in life is cyclical, and this is most true for the semiconductor market. Reducing your position in Nvidia and considering Intel stock may be a wise move at this point. Here’s why:

Nvidia’s AI boom could be brought forward

Over the past couple of years, companies have poured enormous resources into building AI models. Currently, training these large models is a one-off task that requires significant computing power, and Nvidia’s GPUs are considered the fastest and most efficient for these tasks. Because of this, we are receiving the maximum benefit from this. This is evident from Nvidia’s recent revenue growth. Revenue is expected to grow from just $27 billion in FY23 to nearly $130 billion in FY25. However, the AI ​​landscape may be evolving. As the model grows with respect to some parameters, the incremental performance is expected to decrease. Apart from this, the high quality data available for training the model can be a bottleneck. Much of the internet’s high-quality data is already powered by large language models, so a shift from large general-purpose AI models to smaller, specialized models could reduce demand for Nvidia’s high-performance GPUs. There is a gender. The explosive demand that Nvidia has seen over the past few years has likely been brought forward, and future growth is very likely to slow.

Now, the demand for AI-related chips is likely to shift from training to inference, the phase in which a trained model produces an output. Inference is less computationally intensive and could open the door to alternative AI processors. Indeed, Nvidia will remain the clear leader in inference as well (saying inference accounts for about 40% of demand for data center chips). But there is certainly room for entry from rivals such as AMD and possibly Intel. You can gain some market share.

In the first wave of generative AI, enterprises and big tech companies jumped ahead and invested in GPUs out of fear of missing out, without worrying about cost or return on investment. This has given Nvidia more pricing power, with net profit margins of more than 50% in recent quarters. However, as companies and their investors ultimately seek a return on their investments, they may become more prudent about AI costs in the future, which could hurt profit margins. Additionally, rivals like AMD and Intel, as well as Nvidia’s biggest customers like Google and Amazon, are also focusing on developing their own AI chips. Amazon on Tuesday announced plans to build AI ultraclusters. This is essentially a large-scale AI supercomputer built using the proprietary Trainium chipset. This could also pose a risk to Nvidia’s business.

Intel’s foundry business is ripe for a turnaround

While the buzz surrounding Nvidia was the AI ​​boom, the pessimism surrounding Intel was due to its foundry business. The business has posted huge losses (an operating loss of $7 billion in 2023) and faces technological handicaps against industry leader TSMC. However, the sector has the potential for a comeback with the latest 18A process node. This technology features RibbonFET transistors and PowerVia backside power delivery, which promises significant increases in performance and efficiency. Intel has already won contracts with major companies such as Amazon, Microsoft and the US Department of Defense for custom chip designs using the 18A process. Intel has achieved several important technology milestones in this process and expects external customers to move the first 18A designs into production in 2025. If Intel can successfully execute this transition, it could change the narrative around the foundry business. Take a closer look at how Intel stock is being revalued and see why 2025 could be the year of Intel’s comeback.

Additionally, with Donald Trump set to return to the White House in 2025, Intel’s extensive manufacturing footprint in the United States is also likely to emerge as an even more valuable asset. President Trump’s focus on revitalizing domestic manufacturing and reducing dependence on overseas supply chains could lead to favorable policies for Intel. Potential tariffs on foreign chips and incentives for domestic production could give Intel a competitive edge, especially in the foundry sector. Additionally, Intel is positioned to win more federal contracts because of its position as the only U.S.-based semiconductor company that designs and manufactures cutting-edge chips.

Intel may offer better risk-adjusted returns

Intel stock trades at a reasonable valuation of just 23 times consensus 2025 earnings. In fact, earnings expectations for 2025 are low by historical standards, at only about $1 per share given Intel’s current struggles. For perspective, Intel is reporting earnings of nearly $2 per share in 2022 and more than $5 per share in 2021 and 2020. This means that if Intel sees its profits returning to historical levels over the next few years, the stock price could follow suit. The company is expected to return to revenue growth in 2024, with consensus estimates calling for 6% revenue growth, with multiple tailwinds in place for both its chip and foundry businesses. Intel is well-positioned for a recovery in the PC and server markets thanks to an improved CPU lineup centered around its Lunar Lake and Arrow Lake chips. Intel can also expect further improvements in the AI ​​processor space with its Gaudi 2 and upcoming Gaudi 3 AI accelerators.

On the other hand, NVIDIA’s FY2025 expected earnings are extremely high at 48 times. Nvidia has experienced impressive growth recently, but it remains to be seen whether the good times will continue. And with the current assessment, there appears to be little margin for error. The risks highlighted above could jeopardize NVIDIA’s future growth and profits and reduce its earnings. As the AI ​​market shows signs of evolving, investors could see better risk-adjusted returns by moving from Nvidia to undervalued semiconductor companies like Intel. Considering the above factors, there is only one way for Intel to go, and that is likely the solution. For Nvidia, on the other hand, things may be a little more difficult.

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