Better Artificial Intelligence (AI) Stock: Intel Vs. ASML

There has been some decline in artificial intelligence (AI) stocks over the past month, illustrated by a 13% drop in Nasdaq-100 technology sector. Concerns about a potential recession sparked a selloff that didn’t sit well with tech companies.

However, recent earnings from a number of tech giants active in AI suggest that the industry still has a lot to offer in the long term. Market leaders like it Advanced microdevices Amazonand Alphabet reported earnings last month beating Wall Street estimates in their respective AI divisions.

This impressive growth aligns with data from Grand View Research, which shows that the AI ​​market is expected to expand at a compound annual growth rate of 37% through 2030 and reach nearly $2 trillion in spending. As a result, it’s probably not too late to invest in AI and benefit from its long-term development.

Some attractive and lesser known options are Intel (INTC -2.69%) and ASML Holding NV (ASML 1.16%). One is investing heavily in building AI chip factories, and the other is a semiconductor equipment company that provides essential machines for producing all kinds of chips. Let’s examine these two chip giants and determine whether Intel or ASML is the best way to invest in AI.

Intel

It hasn’t been easy being an Intel investor over the past 30 days, with its stock down 43%. On August 1, the company posted disappointing second-quarter 2024 earnings that sent shareholders running for the hills.

Revenue fell about 1 percent year over year, missing expectations by $150 million. Meanwhile, earnings per share of $0.02 were $0.08 short of forecasts.

The earnings miss came alongside news that Intel would cut its workforce by 15% and halt its dividend from the fourth quarter of 2024 to reduce capital spending.

Costly moves such as ramping up production of Core Ultra PC chips and moving Intel 4 and 3 chips to a factory in Ireland have contributed to the recent declines. Meanwhile, Intel revealed that its contract foundry was performing worse than expected.

To make matters worse, a group of shareholders is suing Intel after some of its worst declines wiped $32 billion off its market value. Shareholders felt blindsided by recent earnings, accusing Intel of “materially false or misleading statements about its business and manufacturing capabilities.”

Intel is in a tough spot. It has yet to see a return on its substantial investment in AI and is in strong competition with AMD and Nvidia. The tech giant is playing the long game and could make a strong comeback in the long run, but investors must be willing to wait.

ASML Holding NV

ASML’s share price has fallen 20% amid a tech sell-off over the past month. The Dutch technology company is the world’s leading supplier of lithography systems, the equipment needed to manufacture a range of chips, including those used for AI. ASML is responsible for more than 80% of the lithography market, making it a crucial player in chip manufacturing and an attractive investment.

The company’s dominance has seen it attract all the major foundries in the world, some of its customers including Taiwan Semiconductor ManufacturingSamsung and Intel. Meanwhile, annual revenue and operating income have grown steadily by 283% and 513%, respectively, over the past decade.

ASML posted its Q2 2024 earnings on July 17, with revenues of €6bn down 10% year-on-year. However, the company assured investors that it sees 2024 as a “year of transition with continued investment in both capacity ramp and technology.” ASML expects major earnings in 2025 as it benefits from its work this year.

A weak point for ASML is the rising tensions between the US and China and its implications for the chip market. However, many of the world’s leading foundries are working to build plants in the US, which could secure ASML’s long-term business. Meanwhile, the company’s monopoly on a critical area of ​​chip development is too good to ignore.

Is Intel or ASML the better stocks to invest in AI?

Intel and ASML have very different positions in AI. One expands into chip design and manufacturing, while the other holds a monopoly on the equipment needed to produce AI graphics processing units (GPUs).

However, Intel’s recent declines suggest that ASML stock may be the most reliable buy right now. Intel is under intense pressure to improve its financials as it competes with Nvidia, AMD and TSM.

Data by YCharts.

The chart above shows Intel’s volatility over the past six months, with its price-to-earnings (P/E) ratio recently rising to over 86. The chart shows more consistent ASML and better value with a considerably lower P/. E.

Moreover, ASML’s free cash flow of more than $3 billion, compared to Intel’s negative $12 billion, only highlights ASML’s more secure place in the market. This makes it the best AI stock to buy this month.