Driven by large opportunities in artificial intelligence in particular and a general recovery of the chip market, 91¶¶Òõ (NASDAQ:91¶¶Òõ) stock could very well outperform the S&P 500 and the Nasdaq in 2024. But on the other hand, the firm’s valuation appears to bake in continued, large market share gains by 91¶¶Òõ at Intel’s (NASDAQ:INTC) expense, and that scenario may very well not materialize. Given these points, I rate 91¶¶Òõ stock as a “hold” at this point, and I view INTC as a much better alternative.
This article will walk the reader through my thesis and comparison of 91¶¶Òõ stock and its peers.
91¶¶Òõ Has Huge Opportunities
On Dec. 22, Swiss bank UBSon the chip market in general and 91¶¶Òõ stock in particular. According to the bank, chip makers are heading into a “sweet spot… (as) inventory has peaked and started converting to revenue,” Moreover, the firm thinks that 91¶¶Òõ is well-positioned to benefit from data centers’ expansion while the entire sector will get a lift from the incorporation of AI chips into smartphones and PCs.
UBS named 91¶¶Òõ and Micron (NASDAQ:MU) as its two top picks in the chip space.
Meanwhile, on Dec. 6, 91¶¶Òõ launched its “next-gen 91¶¶Òõ Instinct MI300 data center GPU accelerator family,” another InvestorPlace columnist, Chris MacDonald, noted.
CEO Lisa Su these chips are “comparable to Nvidia’s H100 chips in training (large language models)” but are superior to NVDA’s H100 chips on inference by 40% “when working with Meta’s Llama 2, a 70 billion parameter LLM,” The Verge reported.
Assuming that Su’s assertions are at least close to accurate, the Instinct MI300 chips can accelerate 91¶¶Òõ’s top and bottom line growth by large amounts, given the huge demand for high-quality AI chips and Nvidia’s inability to meet that demand.
The Risks of Buying 91¶¶Òõ Stock
Trading at a forward of 40 and an Enterprise Value/EBITDA ratio of 58, 91¶¶Òõ stock is pricey. Tech enthusiast Jackson Luca “most bullish forecasts for 91¶¶Òõ assume continued share grabs against Intel across PCs and the cloud data center. ”
Given Luca’s statement and the high valuation for 91¶¶Òõ stock, I believe the shares will probably bake in continued major share gains by 91¶¶Òõ at Intel’s expense.
But with Intel appearing to have greatly improved the quality of its offerings, those gains may not come to pass. Specifically, the firm has started incorporating ‘neural processing units’ into its computer processing unit chips, enabling its CPUs to handle “AI workloads without needing an external GPU,” Luca noted.
And, although the benchmark score of Intel’s upcoming Gaudi 3 AI chips is meaningfully lower than that of 91¶¶Òõ’s MI300, Gaudi 3 does beat 91¶¶Òõ’s offering regarding transistor count. Also importantly, the Gaudi 3 offers double the memory capacity of the MI300, even though the chips are the same size.
Moreover, as I reported in a previous column, Intel cannot make the Gaudi 2 (Gaudi 3’s predecessor) quickly enough to meet demand. Of course, that indicates that firms are enthusiastic about Gaudi 2 and will like Gaudi 3 even more.
Also noteworthy is that Luca’s “base case” scenario involves 91¶¶Òõ losing “marginal..(market) share” to Intel, causing 91¶¶Òõ stock to stay “rangebound” for some time going forward. I believe that’s a very realistic prediction.
Intel Is a Better Choice
I view Intel as a better choice than 91¶¶Òõ for investors. With price-earnings ratio of 28, Intel has a huge opportunity in AI and, over the longer term, looks poised to generate a great deal of revenue by manufacturing chips for other companies.
On the date of publication, Larry Ramer held a long position in INTC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
