1 Best AI Stocks to Buy Before 2025 (Hint: It’s Not Nvidia)

By | March 5, 2024

No company has seen a greater benefit from the artificial intelligence boom than Nvidia (NASDAQ: NVDA). Training enormous language models and executing them requires enormous computing power. Nvidia’s data center GPUs are the gold standard in the AI ​​industry and are being snapped up by cloud giants and AI startups alike.

Nvidia’s revenue more than tripled in the most recent quarter thanks to incredible demand for its AI-focused GPUs, while adjusted earnings per share rose by almost sixfold. Nvidia’s market capitalization has risen to more than $2 trillion, making it one of the most valuable companies in the world.

Why Nvidia stock may not be the best AI bet

While Nvidia is currently riding high, competition is almost guaranteed to eat away at the company’s AI market share. Advanced micro devices is now competing with its own powerful AI chips, and major technology and cloud computing companies are increasingly designing custom AI chips optimized for their data centers.

  • Amazon has developed several AI chips: Inferentia for AI inference and Trainium for AI training.

  • AlphabetGoogle is in the fifth generation of its tensor processing unit, or TPU, and the company introduced a version optimized for large AI models late last year.

  • Meta is reportedly working on a custom AI chip to power its massive AI ambitions.

  • Microsoft unveiled its custom Maia 100 AI chip for its Azure cloud platform last year. It will initially be used to power the company’s AI services, including Copilot and the OpenAI services running on Azure.

While these mega-companies are still buying a lot of Nvidia GPUs, the possibilities for training and running AI models are expanding. Nvidia’s total dominance of the AI ​​chip market will almost certainly disappear as time goes on.

Someone has to manufacture and package all those AI chips

Designing an AI chip is something that any major tech company with a big budget can do. Manufacturing those chips is a different story. Today, there is only one viable option for manufacturing AI chips using the most advanced process. TSMC is the market leader in foundries and has a significant technological lead over its competitors.

This situation will change in 2025 Intel (NASDAQ: INTC) is seriously entering the foundry market. The chip giant is carrying out its plan to roll out five new process nodes in four years, with the last node expected to overtake TSMC technologically. The Intel 18A process should be ready for volume production next year, and Intel has already secured a number of key customers.

Intel has secured $15 billion in orders to date for its foundry business, which includes not only Intel 18A but also other nodes and advanced packaging services. Nvidia reportedly plans to use Intel for some of its advanced packaging needs, although that rumor has not been confirmed. A deal with Microsoft to use Intel 18A for an undisclosed future chip has been confirmed, marking a huge win for Intel’s fledgling foundry business.

In addition to Intel 18A, Intel has two additional processes on its roadmap that are intended to strengthen its lead in manufacturing. Intel 14A is expected to arrive in 2026, with Intel 10A to follow in 2027. It will take some time for volume production of both processes to ramp up after their introduction.

An opportunity worth more than $230 billion

The foundry market is expected to more than double to more than $230 billion by 2032. Intel’s market share is rounding to zero today, but if it manages to regain its manufacturing lead and ramp up the capacity of its key nodes, the company could grow that market share rapidly over the next decade.

Today, Intel is valued at less than $200 billion, with its stock still down significantly from its pandemic-era highs. While Intel’s core PC and server CPU businesses will remain important parts of the business, its foundry business has by far the best long-term growth potential.

Importantly, Intel’s foundry can succeed regardless of how the semiconductor and AI industries evolve. Will GPUs remain the dominant method for training and running AI models? Intel could possibly produce them. Do custom AI chips proliferate? Intel could produce those too. What if demand for AI chips lags behind forecasts? Intel can produce other types of chips intended for the data center, smartphones, PCs and other devices.

Although Nvidia is the AI ​​darling today, it faces an onslaught of looming competition. This attack is good news for the foundry industry, and especially good news for Intel, as the company aims to become the second largest foundry in the world by 2030.

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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, 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. Timothy Green has positions in Intel. The Motley Fool holds positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft , and briefly May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.

1 Best AI Stocks to Buy Before 2025 (Hint: It’s Not Nvidia) was originally published by The Motley Fool

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