Battle for AI Supremacy: Analyzing NVIDIA (NVDA) and Intel (INTC)

Being in the semiconductor business is like owning a plantation of Chinese bamboo. Small incremental steps that often seem too insignificant and inconsequential, especially to unsuspecting investment research analysts like us, compound over time to reach an inflection point and give a company’s stock the kind of moonshot like the one that NVIDIA Corporation (NVDA) experienced after its earnings release on May 24.

The Santa Clara-based graphics chip maker has stolen the thunder over the past week by becoming the first semiconductor company to hit a valuation of $1 trillion, albeit briefly, boosted by the interest in AI and its launch of new partnerships.

However, the seeds of this breakout were sown by the company, which went public in 1999 and occasionally flirted with bankruptcy, back in 2006 when the company took the first steps to raise accelerated computing to a whole new level by making its foray into parallel (and consequently faster) computing with the release of a software toolkit called CUDA.

Parallel computing was ideal for artificial neural networks' deep (machine) learning. Hence the kit was first used in AlexNet, a revolutionary AI then. This set off a chain reaction that has propelled the company to the center stage of the AI boom.
Fast-forward to today, and NVDA is reaping the rewards for all that invisible work as its A100 chips, which are powering LLMs like ChatGPT, have become indispensable for Silicon Valley tech giants.

To put things into context, the supercomputer behind OpenAI’s ChatGPT needed 10,000 of Nvidia’s famous chips. With each chip costing $10,000, a single algorithm that’s fast becoming ubiquitous is powered by semiconductors worth $100 million.
Now let’s pivot to the company that put Silicon in Silicon Valley. Intel Corporation (INTC), the pioneer of modern computing, has fallen behind the law attributed to one of its founders, Gordon Moore.

The company, going through a turbulent phase, reported its largest quarterly loss in history in the first three months of 2023, with revenue down 36% and a 133% decline in earnings per share compared to the same period last year. Moreover, its expectations for the second quarter also fell short of analyst expectations.

“We didn’t get into this mud hole because everything was going great,” was the honest assessment by CEO Pat Gelsinger, who also took a pay cut along with other executives as INTC also kicked off cost-cutting measures as it is hustling to catch up to, and hopefully surpass, its more accomplished rivals such as TSMC and Samsung.

However, in its long and eventful history, the company has been here before. The memory chip pioneer, which saw its market share eroding away to oblivion, made a drastic pivot to microprocessors in 1984 at the onset of the PC boom, only to miss the bus on smartphones in 2011 by turning down an early offer from Apple Inc. (AAPL).

Road Ahead

The optimism surrounding NVDA is justified. With the company’s presence in data centers, cloud computing, and AI, its chips are making their way into self-driving cars, engines that enable the creation of digital twins with omniverse that could be used to run simulations and train AI algorithms for various applications.

Even its previously unsuccessful Tegra processors have found a new lease of life in logistics robots and driverless cars.
However, the seeds of chaos are sown at times of unbridled optimism and willful suspension of disbelief. At the risk of spoiling the mood, at the end of the day, the company is primarily a chip designer that is committed to remaining a fabless chip designer to keep capital expenditure low.
Hence, NVDA faces risks of backward integration by companies such as Apple Inc. (AAPL) and Tesla Inc. (TSLA) with the capability to develop the intellectual capital to design their own chips.

Moreover, almost all of the manufacturing has been outsourced to Taiwan Semiconductor Manufacturing Company Ltd. (TSM), which has yet to diversify significantly outside Taiwan and has become the bone of contention between the two leading superpowers.
In contrast, INTC is an Integrated Device Manufacturer (IDM) which designs as well as manufactures semiconductor chips in 15 fabs worldwide and assembles and tests them in Vietnam, Malaysia, Costa Rica, China, and the United States. The company is in the middle of a turnaround and focused on reinforcing its moat by doubling down on the Fab business.

With the aim to surpass the chip-making capabilities of both TSMC and Samsung, INTC is pursuing an aggressive IDM 2.0 road map with new manufacturing facilities in Oregon, New Mexico, Arizona, Ireland, and Israel in the pipeline.
Among those, the new facilities in Arizona would not just be manufacturing chips for the company but also for customers such as Amazon, Qualcomm, and others as part of Intel Foundry Services. While the company still depends on TSMC for 5nm chips that are used for AI applications, it is aiming to take a quantum leap in that direction with even smaller 18 A chips.

The company’s efforts are also receiving much-needed political encouragement in the form of the Chips and Science Act, which is aimed at on-shoring and de-risking semiconductor manufacturing in the interest of national security.

Bottom Line

After weighing the pros and cons of both semiconductor stocks, we conclude that NVDA’s and INTC’s prospective risk-adjusted returns are not as high or as low as their respective stock prices suggest.

4 Value Stocks for Times of Uncertainty

Ahead of the Fed’s July rate hike, markets seem volatile. Given the viability of value investing during such times, quality value stocks Intel (INTC), Micron Technology (MU), AbbVie (ABBV), and Cisco Systems (CSCO) could be solid picks to navigate a volatile environment.

The Fed is yet to announce its next rate hike for July. Since inflation soared to a record 9.1% in June, another 75 bps rate hike seems imminent. Consequently, market volatility is rife, as is evident from the CBOE Volatility Index’s 35.7% year-to-date gains.

Amid such circumstances, value investing has a history of outperforming its growth counterparts. Over the past 40 years, a significant portion of value returns has come during rate hike periods.

Furthermore, Bank of America Corp’s (BAC) chief quant Savita Subramanian prefers value over growth, and the bank expects value stocks to outperform growth in the coming years.

Therefore, fundamentally sound value stocks Intel Corporation (INTC), Micron Technology, Inc. (MU), AbbVie Inc. (ABBV), and Cisco Systems, Inc. (CSCO) could be profitable investments amid the ongoing uncertainty.

Intel Corporation (INTC)

An industry leader, INTC designs, manufactures, and sells computer products and technologies worldwide. It operates through CCG; DCG; IOTG; Mobileye; NSG; PSG; and All Other segments. INTC creates world-changing technology to enable global progress.

On July 12, 2022, INTC launched the first set of its open-source AI reference kits, which were built in collaboration with Accenture plc (ACN). These kits are designed to make AI more accessible to organizations in the on-prem, cloud, and edge environments and are available on GitHub. The company is expected to release a series of open-source AI reference kits over the next year, which should bolster its revenues.

INTC’s Datacenter and AI segment revenue increased 22.1% year-over-year to $6.03 billion for the first quarter ended April 2, 2022. Its net income came in at $8.11 billion, up 141.4% year-over-year, while its EPS came in at $1.98, up 141.5% year-over-year.

INTC’s forward EV/S of 2.18x is 22.1% lower than the industry average of 2.80x. Its forward P/S of 2.23x is 22.5% lower than the industry average of 2.87x.

Analysts expect INTC’s revenue to grow 2.6% year-over-year to $76.43 billion in 2023. Its EPS is expected to grow 2% year-over-year to $3.49 in 2023. It has surpassed EPS estimates in each of the trailing four quarters. Over the past month, INTC has gained 7.6% to close the last trading session at $40.61.

INTC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which indicates a Buy in this proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

INTC has an A grade for Value and a B grade for Quality. Within the B-rated Semiconductor & Wireless Chip industry, it is ranked #24 out of 94 stocks. Click here to learn more about POWR Ratings.

Micron Technology, Inc. (MU)

MU designs, manufactures, and sells memory and storage products worldwide. The company operates through four segments: Compute and Networking Business Unit; Mobile Business Unit; Storage Business Unit; and Embedded Business Unit.

On July 6, 2022, MU announced the commercial and industrial channel partner availability of Micron DDR5 server DRAM to support the industry qualification of next-generation Intel and AMD DDR5 server and workstation platforms. The product’s commercial availability should add to the company’s revenue stream.

On June 30, 2022, MU’s President and CEO Sanjay Mehrotra, said, “We are confident about the long-term secular demand for memory and storage and are well positioned to deliver strong cross-cycle financial performance.”

For the third quarter ended June 2, 2022, MU’s revenue increased 16.4% year-over-year to $8.64 billion. Its non-GAAP net income came in at $2.94 billion, up 35.3% year-over-year. Also, its non-GAAP EPS came in at $2.59, up 37.8% year-over-year.

In terms of its forward EV/S, MU’s 2.09x is 25.4% lower than the industry average of 2.80x. Its forward P/S of 2.22x is 22.6% lower than the industry average of 2.87x.

MU’s revenue is expected to come in at $31.38 billion in 2022, representing a 13.2% year-over-year rise. The company’s EPS is expected to increase 41.3% year-over-year to $8.56 in 2022. In addition, it surpassed EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 12% to close the last trading session at $63.64.

MU has an overall B grade equating to a Buy in the POWR Ratings system. It also has an A grade for Value and a B for Quality.

MU is ranked #39 in the Semiconductor & Wireless Chip industry. Click here to learn more about POWR Ratings.

AbbVie Inc. (ABBV)

ABBV discovers, develops, manufactures, and sells pharmaceuticals worldwide. The company functions across several key therapeutic areas like immunology, oncology, neuroscience, eye care, virology, and gastroenterology.

In July, ABBV announced Health Canada’s approval for its RINVOQ® (upadacitinib, 15 mg), an oral, once-daily selective and reversible JAK inhibitor for the treatment of adults with active ankylosing spondylitis (AS). This is expected to expand the company’s portfolio of treatment options for Canadians.

On July 20, 2022, ABBV and iSTAR Medical SA announced a strategic transaction to develop and commercialize iSTAR Medical’s MINIject® device, a minimally invasive glaucoma surgical device. The strategic alliance is expected to be a step forward in the company’s innovation in glaucoma treatment.

ABBV’s net revenues for the first quarter ended March 31, 2022, came in at $13.54 billion, up 4.1% year-over-year. Its net earnings came in at $4.49 billion, up 26.4% year-over-year. Moreover, its adjusted EPS came in at $3.16, up 9.3% year-over-year.

ABBV’s forward EV/EBITDA of 10.39x is 22.8% lower than the industry average of 13.46x. Its forward P/S of 4.38x is 5% lower than the industry average of 4.61x.

Analysts expect ABBV’s revenue to increase 6.2% year-over-year to $59.61 billion in 2022. Its EPS is expected to increase 9.8% year-over-year to $13.94 in 2022. It surpassed EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 26.3% to close the last trading session at $147.75.

It’s no surprise that ABBV has an overall A rating, equating to a Strong Buy in the POWR Ratings system. In addition, it has an A grade for Quality and a B for Growth and Value.

ABBV is ranked #9 out of the 167 stocks in the Medical – Pharmaceuticals industry. Click here to learn more about POWR Ratings.

Cisco Systems, Inc. (CSCO)

CSCO designs, manufactures, and sells Internet Protocol-based networking and other products related to the communications and information technology industry in the Americas, Europe, the Middle East, Africa, the Asia Pacific, Japan, and China.

On July 21, 2022, CSCO launched a new Webex Wholesale Route-to-Market for Service Provider partners to address the evolving needs of SMBs. This new model is expected to offer greater customer satisfaction for CSCO and its partners.

In June, CSCO launched AppDynamics Cloud, which delivers power and usability in a single, intuitive interface. AppDynamics Cloud supports cloud-native, managed Kubernetes environments on Amazon Web Services (AWS) and is expected to expand to Microsoft Azure, Google Cloud Platform, and other cloud providers in the future.

CSCO’s total revenue increased marginally year-over-year to $12.84 billion for the third quarter ended April 30, 2022. Its net income came in at $3.04 billion, up 6.3% year-over-year, while its EPS came in at $0.73, up 7.4% year-over-year.

CSCO’s forward EV/EBITDA of 8.96x is 28.7% lower than the industry average of 12.55x. Its forward EV/EBIT of 10.01x is 35.5% lower than the industry average of 15.54x.

CSCO’s revenue is expected to increase 3.3% year-over-year to $52.86 billion in 2023. Its EPS is expected to grow 5.4% year-over-year to $3.53 in 2023. Also, it surpassed EPS estimates in each of the trailing four quarters. The stock has gained marginally over the past month to close the last trading session at $44.58.

CSCO’s overall B rating equates to a Buy in the POWR Ratings system. Also, it has an A grade for Quality.

CSCO is ranked #8 out of 53 stocks in the Technology – Communication/Networking industry. Click here to learn more about POWR Ratings.

About the Author

Riddhima Chakraborty is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. Riddhima is a regular contributor for

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