Sell ​​Nvidia, buy Intel stock?

Nvidia has been the poster child of the AI ​​boom, with its stock up more than 180% this year, pushing its valuation to nearly $3.4 trillion. Nvidia’s revenue is on track to more than double this fiscal year, thanks to growing demand for its GPUs, which have become the de facto chips for AI applications. On the other hand, Intel Stock had a tough year. The stock remains down about 50% year to date and its market cap is just $100 billion. Intel’s revenue is expected to contract this year. But here’s the thing: Maybe it’s a good time to rethink the AI ​​barometer. Why then? Also look at a crypto powerhouse that is up 300% in a month, XRP is just heating up.

Markets are often myopic and tend to extrapolate short-term trends over the long term. In Nvidia’s case, they believe that demand for AI accelerators will continue and that Nvidia’s margins and growth rates will remain strong. On the other hand, Intel’s losses in processor market share and struggles at its foundries have made investors pessimistic about its future. However, almost everything in life is cyclical and this couldn’t be more true with the semiconductor markets. Reducing positions in Nvidia and considering Intel shares could be a wise move at this point. We explain below – the “why”. Furthermore, if you want an increase with a smoother journey than an individual title, consider the High quality wallet, which has outperformed the S&P and recorded returns in excess of 91% since its inception.

Nvidia’s AI boom could be head-on

Companies have devoted immense resources to building AI models over the past couple of years. Now, training these massive models is more of a one-off affair that requires considerable computing power and Nvidia has been the biggest beneficiary of this, as its GPUs are considered the fastest and most efficient for these tasks. This is evident from Nvidia’s recent revenue growth. Sales are on track to grow from just $27 billion in FY23 to nearly $130 billion in FY25. However, the AI ​​landscape could be changing. As models grow in terms of more parameters, the incremental performance gains should decrease. Additionally, the availability of high-quality data for training models risks becoming a bottleneck. With much of the Internet’s high-quality data already managed by large language models, there could be a shift from large-scale, general-purpose AI models to smaller, specialized models, reducing demand for Nvidia’s high-power GPUs. The explosive demand that Nvidia has witnessed in recent years may very well have been front-loaded, with future growth slowing.

Now, the demand for AI-related chips could shift from training to inference, which is the phase in which trained models generate results. Inference requires fewer calculations and could open the door to alternative AI processors. Granted, Nvidia will also likely remain the leader in inference by a wide margin (it says inference accounts for about 40% of its data center chip demand), but there’s certainly an opening on the part from competitors such as AMD and potentially even Intel. gain some market share.

During the first wave of generative AI, enterprises and large technology companies rushed to invest in GPUs out of “fear of missing out,” without worrying about costs and returns on investments. This has led to increased pricing power for Nvidia, with net margins exceeding 50% in recent quarters. However, companies and their investors will eventually seek returns on their investments, meaning they may become more judicious about AI costs in the future, potentially hurting margins. Additionally, in addition to competitors such as AMD and Intel, Nvidia’s biggest customers such as Google and Amazon are increasing their efforts to create their own AI chips. On Tuesday, Amazon announced plans to build an AI ultracluster, essentially a massive AI supercomputer that will be built using its proprietary Trainium chipsets. This could also pose a risk to Nvidia’s business.

Intel’s foundry business is poised for recovery

While the story around Nvidia has been one of the AI ​​boom, the pessimism around Intel is due to its foundry business. The company recorded significant losses ($7 billion operating loss in 2023) and also faced a technological disadvantage compared to industry leader TSMC. However, the division is set for a potential return with its all-new 18A process node. This technology, featuring RibbonFET transistors and a PowerVia rear power supply, promises significant improvements in performance and efficiency. Intel has already signed contracts with major players like Amazon, Microsoft and the US Department of Defense for custom chip designs using the 18A process. Intel has achieved some key technical milestones with this process and the company expects its external customers to put their first 18A designs into production in 2025. If Intel succeeds in this transition, it could change the narrative around its foundry business. See why 2025 Could Be the Year Intel Stock Comes Back for an in-depth look at how Intel shares could be repriced higher.

Additionally, with Donald Trump returning to the White House in 2025, Intel’s vast manufacturing presence in the United States is also likely to become a much more valuable asset. Trump’s emphasis on strengthening domestic manufacturing and reducing reliance on foreign supply chains could translate into policies favorable to Intel. Potential tariffs on foreign-made chips or incentives for domestic production could give Intel a competitive advantage, particularly in its foundry division. Additionally, Intel’s status as the only U.S.-based semiconductor company that designs and manufactures cutting-edge chips positions it well to win more federal government contracts.

Intel could offer better risk-adjusted returns

Intel stock trades at a reasonable valuation, at just 23 times consensus earnings for 2025. The 2025 earnings estimate is actually below historical levels, at around $1 per share, due to the company’s current struggles. Intel. For perspective, Intel reported earnings of nearly $2 per share in 2022 and earnings of more than $5 per share in 2021 and 2020. This means that if Intel sees earnings return to historic levels in the years coming soon, the title could also follow suit. The company is expected to return to revenue growth in 2024, with consensus estimates pointing to a 6% revenue increase and multiple tailwinds in the chip and foundry sector. Intel’s improving processor lineup, driven by Lunar Lake and Arrow Lake chips, positions it well for a recovery in the PC and server markets. Intel could also see a gradual increase in the area of ​​AI processors with its upcoming Gaudi 2 and Gaudi 3 accelerators.

While Nvidia has made outsized gains, on the other hand, the Trefis High Quality Wallet (HQ)with a collection of 30 titles, is less volatile. And he has has outperformed the S&P 500 every year over the same period. Why then? As a group, stocks in the HQ portfolio have generated better returns with less risk relative to the benchmark; less of a roller coaster ride, as evidenced by HQ Portfolio Performance Metrics.

Nvidia, on the other hand, is trading at a lofty 48x projected fiscal 2025 earnings. Even though Nvidia has seen impressive growth recently, it remains to be seen whether the good times will last. And given the current valuation, we see little room for error. The risks we’ve highlighted above could jeopardize Nvidia’s future growth and margins, thereby weighing on the company’s earnings. As the AI ​​market shows signs of evolving, investors could get better risk-adjusted returns by moving from Nvidia to more undervalued semiconductor players like Intel. Considering the above factors, Intel may only have one path to go and that’s probably the case. For Nvidia, on the other hand, things could get a little trickier.

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