Every investor's primary goal is to win, and the key to success lies in finding stocks that are poised to profit from major trends. In today's digital economy, two sectors stand out: semiconductors and artificial intelligence. Semiconductors are essential, powering everything from computers and tablets to cars and ovens. Meanwhile, AI, the latest breakthrough technology, is rapidly transforming the technology industry and revolutionizing how we interact with machines, unfolding before our eyes in real time.
Grand View Research predicts that the AI industry will grow at a compound annual growth rate (CAGR) of over 36% by 2030, surpassing its current market capitalization of $200 billion. With numbers like these, you can see that your best stock picks are likely to be found in semiconductor chip companies, especially those dealing with AI.
Oppenheimer's Rick Schafer has been following this theory with some of his recent stock picks as he keeps a close eye on the technology industry. The analyst, who is ranked #5 overall on Wall Street by TipRanks, has named two AI chip stocks in particular to take a closer look at: Nvidia (NASDAQ:NVDA) and Intel (NASDAQ:INTC). Schafer has thoroughly analyzed them and is not shy about picking one as the best AI stock to buy. Here are the details:
NVIDIA
Nvidia is one of the true giants of the technology world. With a market capitalization of $2.58 trillion, it is the third-largest publicly traded company in the world. The company has achieved this status primarily through its dominance in the market for high-volume, AI-enabled processing chips.
These chips have been part of Nvidia's portfolio for decades. The company is known for inventing the GPU chip, the ancestor of today's leading AI and data center processors. Initially developed for the video gaming niche, the technology has proven adaptable and is now the foundation for a wide range of uses in server stacks, data centers, and AI – all areas that require high processing speeds and capacity to enable fast computing.
Earlier this year, Nvidia's stock price hit an all-time high of over $1,100 before the company did a 10-for-1 stock split in June, sending the stock price down to $110. By mid-July, the stock price had risen further to nearly $135, but has since been on a downward trend.
Several factors are impacting Nvidia's stock price. Market sentiment has turned cautious and concerns are growing over signs of a potential economic downturn. Tech stocks that have driven the recent market rally and are sometimes deemed overvalued are facing pullbacks as a result. Speaking of Nvidia, the company recently announced a three-month delay in the release of its long-awaited Blackwell B200 series chips. Deliveries are not expected until early next year, although Nvidia has assured that production ramp-ups are on schedule. The delays have investors worried, despite large pre-orders from major AI developers like Microsoft.
At the same time, Nvidia's popular H100 line of chips continues to show strong sales, which is expected to make up for any shortfalls during the delay period.
Nvidia is scheduled to report its fiscal second-quarter 2025 results later this month, with revenue expected to be $28.54 billion (up 111% year over year) and non-GAAP earnings per share of 64 cents.
Despite the recent delays, Schafer remains bullish on Nvidia and believes the company's stock is likely to continue to grow.
“Recent reports indicate that NVDA has notified MSFT of a delay in the upcoming Blackwell production ramp, now expected in Q1 (previously Q4)…Our view is that the impact will likely be minimal and short-term (Q1-2) as the lifecycle of the current generation Hopper (which has a 30-40% lower ASP) will likely be extended to fill the gap…NVDA's competitive position remains healthy and we do not expect it to lose share due to the slight delay. With DC sales up over 5x year-over-year and release cycles moving to annual, we expect some growing pains. We believe NVDA is best positioned in the AI space and benefits from its full stack AI hardware/software solutions,” Schafer said.
These comments support Schaefer's outperform (i.e. buy) rating on NVDA shares, and his $150 price target suggests a one-year upside potential of more than 43%. (To watch Schaefer's track record, click here)
Overall, NVIDIA shares have a Strong Buy rating from Wall Street, based on 41 recent analyst reviews (37 Buys vs. 4 Holds). The company's shares are priced at $104.75 and have an average price target of $144.17, suggesting an upside of about 38% over the next year. (See NVDA Stock Forecast)
Intel
Next up is Intel. You almost certainly know the name from the little sticker on the front of your home computer or laptop. Intel's iCore series chips have long been the market leader in the PC processor segment and are considered the industry standard. Their leadership in this segment has also carried Intel through recent years as AI has risen to the forefront of the tech world. While Intel is not in the top 10 chip makers by market capitalization, they are still fourth in revenue, bringing in over $55 billion in sales over the past four quarters.
But Intel wants to remain a leader, so it needs to shift its development and product lines to AI-enabled chipsets without losing its strong grip on PC processors. The company has begun releasing new AI-enabled products, including PC chips that can support AI personal computer applications. Intel is one of the few major chip companies that also has its own production, giving it a key advantage in this planned shift. As such, it has more control over its product lines and lead times, and is accustomed to producing semiconductors at industrial scale and quality.
Additionally, Intel is focusing on building foundries. The federal CHIPS Act made large grants available to the chip industry, and Intel has taken advantage of $8.5 billion in grant funding. This is in addition to federally guaranteed loans totaling $11 billion. This is a large amount of funding, and Intel is using it to build and launch foundry projects in the United States, with a particular focus on manufacturing AI-enabled CPUs.
Such changes aren't cheap, and the cost isn't always directly measured in revenue. Intel reported lower-than-expected revenue and earnings in its second-quarter 2024 report. Revenue of $12.83 billion was down nearly 1 percent year over year and $150 million below expectations, while non-GAAP earnings per share were 2 cents, 8 cents below expectations. As a result, the company's stock price fell and is still recovering. INTC is down more than 31% since the earnings release.
Oppenheimer's Schafer explains in clear terms why investors are reluctant on Intel, saying of the company: “After an aggressive recapitalization, management has pivoted to strengthen profitability and is announcing COGS/Opex/Capex reductions to save $10B in 2025. 15% headcount reduction. Share loss and structural shift from traditional CPU-centric computing to AI-accelerated continue to weigh on INTC. Node/foundry investments are pressuring margins. We remain on the sidelines as turnaround efforts take hold.”
This on-the-side stance equates to a “perform” (i.e. hold) rating from top analysts, who have declined to set a price target for Intel's shares until they have seen how the stock moves forward.
The Street is generally in agreement with the stock's hold rating, with 1 buy, 25 hold, and 5 sell ratings (a hold consensus) from 31 recent analyst reviews. But analysts are as good as saying “buy” because, on average, analysts think the stock, currently at $19.71, could soar to $27.82 within a year, delivering a 41% gain for new investors. (See INTC Stock Price Forecast)
For leading analyst Rick Schafer, the choice is clear: buy Nvidia, which is clearly the better AI stock choice right now.
To find great ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, our tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is for informational purposes only. It is extremely important that you conduct your own analysis before making any investment.
