Should You Forget Nvidia and Buy This Tech Stock Instead?

Anders Bylund, The Motley Fool

Sat, Jan 11, 2025, 4:51 AM 4 min read

Semiconductor designer Nvidia (NASDAQ: NVDA) has been crushing the stock market in recent years. As a leading hardware provider for the artificial intelligence (AI) boom, Nvidia's sales and profits are soaring. The stock rose 171% in 2024 and more than 720% since OpenAI released the Nvidia-powered ChatGPT system in 2021.

Nvidia is the talk of the town and many investors expect its business to keep skyrocketing. But the enthusiasm has its limits. Some would say that Nvidia's soaring stock price already accounts for many years of high-octane growth. This market darling might be due for a price correction, or maybe it's just primed for lower price gains over the next couple of years.

I'm not saying you should forget about Nvidia. Even if the stock is poised for a price correction, I'm still talking about a dominant technology leader in a thriving AI market. Holding the stock should work out in the long run.

Still, I don't think Nvidia is the best tech stock to buy right now. Have you taken a close look at Intel (NASDAQ: INTC) lately? You might like what you find in the undervalued chip giant.

A person scratching their head with a frown. — Image source: Getty Images.

Intel's recent struggles

Intel has seen its share of issues in recent years. There's been turnover in the CEO office, longtime rival Advanced Micro Devices (NASDAQ: AMD) is stealing market share from Intel in a couple of key segments, and the company formerly known as "Chipzilla" has not found a footing in the surging AI opportunity.

As such, the stock has fallen 71% in the last five years to trade at just 1.5 times trailing sales and 20 times next-year earnings estimates. These valuation measures are cheap from a historical perspective and extremely affordable next to AMD's and Nvidia's lofty ratios.

In short, the market seems to be pricing Nvidia's stock for perfection while pricing Intel's stock for absolute disaster. The latter's market value is currently below its book value, as though suggesting that investors might be better off if Intel shut down its business, sold its chip factories and other assets, and found a tax-free way to return the resulting cash to shareholders.

Intel's ambitious long-term plan

And I think that's a shortsighted view of Intel.

You see, the semiconductor pioneer is making significant shifts to its business model. It's a costly plan that involves spending about $100 billion on domestic chip-making facilities over the next five years.

It's also an ambitious business idea that should turn Intel into a world-class third-party chip builder with most of its factories on American soil. That's an important detail, because the global tech industry's reliance on Taiwan-based manufacturing plants may not be sustainable in the long run.

Furthermore, Intel's third-party chip foundry business has already attracted orders from global giants such as Microsoft (NASDAQ: MSFT). Even Nvidia is thinking about sending chip orders to Intel, taking advantage of the company's American footprint and a supply chain that's almost entirely separate from the large but still limited resources available to global leader Taiwan Semiconductor (NYSE: TSM).

So the new Intel is not the chip maker you're used to, but the revamped business plan could be quite valuable in the long run.

Intel's temporary struggles created a fantastic buying window

I don't expect a huge Intel turnaround in 2025 or even 2026. The foundry-focused strategy shift will take time, and the company is under an interim management team right now.

But I don't mind taking the long view. Intel's stock may have been due for a price correction amid the turmoil seen in recent years, but it didn't deserve a 71% price cut. This isn't even a turnaround story, but an investor overreaction to Intel's drastic strategy shift. I'd much rather buy into this misunderstood ambition than pick up more Nvidia shares at sky-high share prices. You might reach the same conclusion after doing your own research.

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Anders Bylund has positions in Intel and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft, short February 2025 $27 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Should You Forget Nvidia and Buy This Tech Stock Instead? was originally published by The Motley Fool

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