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The Battle for AI Dominance: Microsoft vs. Intel The Battle for AI Dominance: Microsoft vs. Intel

Artificial intelligence (AI) has taken Wall Street by storm in the past year, with the AI market reaching nearly $200 billion in 2023 and projected to grow at a staggering compound annual growth rate of 37% through 2030. This trajectory could see it surpass a valuation of $1 trillion before the end of the decade, setting the stage for a fierce competition among tech companies vying for a piece of the lucrative AI market in the coming years.

Two prominent contenders in this race are Microsoft (NASDAQ: MSFT) and Intel (NASDAQ: INTC), each making substantial strides within the AI landscape. As investors seek out the most promising opportunities to capitalize on this burgeoning sector, the question arises: which company, Microsoft or Intel, is better poised to emerge as the leading AI stock in 2024?

Microsoft’s AI Ascendancy

Microsoft solidified its position as a formidable force in AI when it acquired a 49% stake in OpenAI, the developer of ChatGPT, a cutting-edge AI model. This strategic move bolstered Microsoft’s capabilities, putting it on par with industry rivals such as Amazon and Alphabet in the AI domain.

Following the acquisition, Microsoft promptly integrated OpenAI’s technology into its product lineup, enhancing its search engine Bing and injecting AI tools into its Azure cloud platform and various Office applications to elevate productivity.

Despite being in the early stages of its foray into AI, Microsoft’s financial performance has outshone expectations, with a 13% year-over-year revenue surge in the first quarter of 2024. Particularly impressive was the 19% revenue growth in its cloud segment and a 13% upturn in its productivity division, both of which are heavily focused on AI development and bode well for the company’s long-term prospects.

In addition, Microsoft’s achievement of over $63 billion in free cash flow in 2023 signifies its financial capacity to continue investing in AI and thrive in the burgeoning market.

Intel’s AI Ambitions

Although Intel currently lags behind Microsoft in AI, this situation could signify greater growth potential in the foreseeable future. The surge in chip stocks, precipitated by the rising enthusiasm for AI, saw Nvidia claim an estimated 90% market share in AI graphics processing units (GPUs), establishing a significant lead in the sector. Intel, however, is gearing up to challenge Nvidia’s dominance, a move that could catapult it to new heights in 2024.

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Intel’s unveiling of a new line of AI GPUs known as Gaudi3, designed to directly rival Nvidia’s offerings, signaled its concerted effort to carve out a formidable presence in the AI chip arena. Furthermore, the introduction of Core Ultra processors and Xeon server chips, equipped with a neural-processing unit to accelerate AI program execution, underscored Intel’s commitment to AI innovation.

Despite weathering a challenging period, marked by a downturn in the PC market and a 14% year-over-year revenue dip in Q3 2023, Intel’s operating income surged over 43% to $2 billion. This turnaround, coupled with the launch of its new AI chips, positions Intel for significant gains in the coming year.

Evaluating the Better AI Stock

Both Microsoft and Intel have made substantial investments in AI and exhibit considerable potential in the sector. However, while Microsoft has been proactive in leveraging AI to drive revenue growth, it also bears a forward price-to-earnings (P/E) ratio of 36, signifying a pricier stock compared to Intel’s P/E ratio of 25. This suggests that Intel’s stock may offer greater value to investors.

Furthermore, earnings-per-share (EPS) estimates indicate that Intel may hold more potential for stock growth over the next two fiscal years. Projected EPS of $15 for Microsoft and nearly $3 for Intel, when multiplied by their respective forward P/Es, yield stock prices of $540 for Microsoft and $68 for Intel. This would translate to a 36% rise in Microsoft’s stock and a 42% increase in Intel’s stock over the next two fiscal years, with Intel appearing as the more attractive investment owing to its higher percentage gain, lower stock price, and formidable position in AI.

With the stage set for a head-to-head battle between these tech titans, investors eying the AI sector may find Intel to be the more compelling investment opportunity in the year ahead.