Considering the Current Market Scene, is It Wise to Ignore Intel and Purchase Two Artificial Intelligence (AI) Shares Immediately?

Considering the Current Market Scene, is It Wise to Ignore Intel and Purchase Two Artificial Intelligence (AI) Shares Immediately?

Companies that refuse to adapt to changing trends often fall behind. A prominent case in point is Blockbuster Video, which had the opportunity to acquire Netflix for $50 million, but the CEO overlooked its potential. Fast forward, and Netflix is now worth an astronomical $399 billion, while Blockbuster is now just a memory.

Similarly, Intel (INTC 1.16%) is facing some challenges. Although it's highly unlikely that Intel will go out of business, its failure to tap into the smartphone market, its recent reluctance towards artificial intelligence (AI), among other missteps, have left the tech giant in a precarious position. The proof lies in the stock market. Nvidia's stock is soaring, while Intel's is plummeting.

Intel is currently undergoing a leadership change, but such transformations take time. In the meantime, these two AI stocks may outperform:

Arm Holdings

When Intel missed out on supplying chips for the iPhone, it was a significant blow that significantly benefited Arm Holdings (ARM -2.02%). Nearly 100% of global smartphones use Arm-based chips. In other words, Arm dominates the market. It doesn't manufacture the actual chips; instead, it designs the fundamental blueprint (referred to as the architecture) and licenses it to other companies, mostly tech giants. Arm generates revenue from licensing fees and royalties based on products with its chip architecture.

During the second quarter of fiscal 2025 (ended Sept. 30), Arm's revenue surged to a record high of $844 million, recording a 5% year-over-year growth. Although growth slowed down due to the timing of some licensing revenue, Arm anticipates an impressive 13% growth next quarter and 22% for the entire fiscal year. One of the primary advantages of Arm's business model is the consistency of revenue. The company still collects royalties from products developed decades ago, which lowers costs associated with older products.

Arm caters to various sales channels, including mobile, cloud computing, automotive, and the Internet of Things (IoT). As of fiscal 2024, Arm controlled 41% of the automotive market, 15% of the cloud market, 54% of the IoT market, and an impressive 99% of the mobile market. With such extensive market dominance, Arm is poised for growth.

As of this writing, Arm's stock price has appreciated by 93% in 2024, granting it a $153 billion market cap. This translates to a hefty 39 times the midpoint sales guidance for this fiscal year. However, given Arm's steady growth, it's safe to say that it will eventually live up to its valuation. Interested investors might want to adopt dollar-cost averaging to spread out the risk of buying at a peak price and take advantage of any potential stock price dips.

Marvell Technology

You're probably familiar with Nvidia, the world-renowned powerhouse in the data center sector with a staggering $3 trillion-plus market value. Nvidia's high-powered graphic processing units (GPUs) delivers rapid-fire data processing. However, Nvidia doesn't operate in a vacuum. Data centers also rely on other infrastructure, like optical interconnects, switches, and controllers, which are supplied by Marvell Technology (MRVL -1.08%).

Data centers are being built at an accelerated pace. Some examples include Amazon's $10 billion investment in an Ohio center, Microsoft's billion-dollar projects in several states, and Elon Musk's xAI supercomputer, which is predicted to contain 1 million GPUs. These massive builds serve as strong tailwinds for Marvell, which anticipates a $75 billion total market opportunity by 2028.

During the third quarter of fiscal 2025 (ended Nov. 2), Marvell's revenue climbed to $1.5 billion, marking a 7% year-over-year increase. The data center segment accounted for $1.1 billion in total sales, recording an impressive 98% year-over-year growth. Marvell projects an impressive 26% total sales growth next quarter, amounting to $1.8 billion.

Marvell is yet to achieve profitability, but many substantial costs, like depreciation, restructuring charges, and stock-based compensation, are non-cash. Marvell reported a remarkable non-GAAP operating margin of 30% in the last quarter.

On Wall Street, 33 of 36 analysts view the stock as a buy or strong buy. Although the average 12-month price target is slightly lower than its current price ($118 versus $123), analyst targets are likely to rise with accelerating revenue growth. Investors must consider regular buying techniques, such as dollar-cost averaging, to minimize risk and profit from potential stock price dips.

Intel's reluctance towards investing in artificial intelligence has negatively impacted its financial performance, as evidenced by the stark contrast between its plummeting stock price and Nvidia's soaring stock, a company that has seized AI opportunities. Similarly, investors might consider investing in AI-focused stocks like Arm Holdings, which has a significant market share in the mobile and IoT sectors and is poised for growth with its consistent revenue model.

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