Nvidia (NASDAQ: NVDA ) has been the “go-to” artificial intelligence (AI) stock for several years. As this tech giant is the No. 1 designer. 1 of AI chips, we generated staggering revenue growth that reached record levels and proved to be a winner in AI development. So it’s no surprise that investors have turned to the stock, pushing it to gain nearly 900% over the past five years.
But in the first half of this year, a change happened. Investors are spinning out of some of AI’s biggest winners — like Nvidia — and picking up AI stock shares that haven’t gained much. That move helped chip companies Advanced Micro Devices (NASDAQ: AMD) and Intel (NASDAQ: INTC) is rising. Up 171% and 278%, respectively, in the first quarter, crushing Nvidia. The AI chip giant advanced 7.2%, the smallest gain for the stock.
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Will AMD and Intel continue to crush Nvidia? Here is my prediction for the second half.
Image source: Getty Images.
The opportunity for AI
Before we get to my predictions, let’s catch up on how these companies have made the AI opportunity so far. Nvidia was the first to market with graphics processing units (GPUs) that meet the needs of AI, allowing the company to build its leadership here. Intel and AMD have traditionally been leaders in one type of processor: the central processing unit (CPU), the main processor in computers.
Intel has led here for years and holds more than 59% of the total CPU market, although AMD has gained, going from about 17% back in 2016 to 38% today.
The GPU was the most important of the two chips in the early days of AI, driving critical tasks like training AI models. And that was good news for Nvidia. AMD and Intel entered the GPU market later, and while AMD successfully brought growth here, Intel encountered difficulties.
That said, Intel intends to change this and is taking some important steps. The company appointed new CEO Lip-Bu Tan a little over a year ago to drive the company’s turnaround strategy and strengthen its position in the AI market, and investors are loving the progress so far and the good news that has come out. The US government took a 10% stake in Intel last summer, worth about $10 billion — a sign of confidence investors appreciate. In the most recent quarter, Intel’s earnings rose 7%, and this was the sixth consecutive quarter of earnings that exceeded the company’s expectations.
AMD and Intel skyrocket
So, it’s no surprise that AMD and Intel, which lag far behind Nvidia in terms of stock performance, saw their shares rise rapidly in the first half of this year.
Now, here is my prediction for the second part. I predict that Nvidia will surpass these competitors. And this is due to two reasons: Nvidia’s next goal and its measurement. I will start with the goal, and this is to dominate the 200 billion CPU market – a market where Nvidia has not been very present in the past. In fact, it launched its first standalone CPU this fall as part of the Vera Rubin platform. And at the same time, Nvidia is targeting the personal computer market with a superchip — also set for release in the fall — that combines a GPU and a CPU.
Although it may be difficult for Nvidia to take complete leadership of the entire CPU market, I think the company can clearly dominate the CPU market for data centers. Nvidia is already predicting $20 billion in standalone CPU sales this year. It’s important to note that the CPU is the critical chip needed to power agent AI — and agency AI is expected to be the next growth driver for AI. This includes the application of AI to real-world problems, where an agent takes action to solve problems.
Although Nvidia’s potential CPU market leadership may not happen overnight, the successful launch of the Rubin platform and high demand could lead to a positive performance of Nvidia’s stock in the second quarter.
The valuation may pressure investors to favor Nvidia over AMD and Intel.
NVDA PE Ratio (Forward) data via YCharts
At roughly 22x forward earnings estimates, Nvidia looks cheap, while its two chip peers look expensive after their recent gains. All this leads me to predict that Nvidia, which has seen a slowdown in the stock market in recent months, may rise in the second half – and crush AMD and Intel.
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Adria Cimino has no position in any of the specified stocks. The Motley Fool has positions and recommends Advanced Micro Devices, Intel, and Nvidia. The Motley Fool has disclosure policy.
AMD Stock and Intel Crush Nvidia in First Quarter. Here’s My Prediction for Part Two. was first published by The Motley Fool
