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

There has been some pullback in artificial intelligence (AI) stocks over the last month, illustrated by a 13% dip in the Nasdaq-100 technology sector. Concerns over a potential recession triggered a sell-off that wasn't kind to tech companies.

However, recent earnings from a range of tech giants active in AI suggest the industry still has much to offer over the long term. Market leaders like Advanced Micro Devices, Amazon, and Alphabet reported earnings over the last month, beating Wall Street estimates in their respective AI divisions.

This impressive growth aligns with data from Grand View Research, which shows 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 likely not too late to invest in AI and profit from its long-term development.

Some attractive and lesser-known options are Intel (NASDAQ:INTC) and ASML Holding NV (NASDAQ:ASML). One is investing heavily in constructing AI chip fabs and the other is a semiconductor-equipment company supplying crucial machinery for producing all kinds of chips. Let's examine these two chip giants and determine whether Intel or ASML is the better way to invest in AI.

Intel

It hasn't been easy to be an Intel investor over the last 30 days, with its stock plunging 43%. On Aug. 1, the company posted disappointing second-quarter 2024 earnings, which sent stockholders running for the hills.

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

The earnings miss came alongside news that Intel would cut 15% of its workforce and halt its Q4 2024 dividend to reduce capital expenditures.

Costly moves, such as ramping up Core Ultra PC chip production and moving its Intel 4 and 3 chip wafers to a plant in Ireland, contributed to recent declines. Meanwhile, Intel revealed 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 saw $32 billion wiped off its market value. The stockholders felt blindsided by recent earnings, accusing Intel of "materially false or misleading statements regarding the business and its manufacturing capabilities."

Intel is in a tough spot. It has yet to see a return on its hefty investment in AI and is in steep competition with AMD and Nvidia. The tech giant is playing the long game and could come back strong over the long term, but investors must be willing to wait.

ASML Holding NV

ASML's share price has tumbled 20% amid a tech sell-off over the last month. The Dutch tech company is the world's leading supplier of lithography systems, the equipment necessary to manufacture a range of chips, including the kind 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 world's biggest foundries, with some of its clients including Taiwan Semiconductor Manufacturing, Samsung, and Intel. Meanwhile, its annual revenue and operating income have consistently risen 283% and 513%, respectively, over the last decade.

ASML posted its Q2 2024 earnings on July 17, with revenue of 6 billion euros falling 10% year over year. However, the company has assured investors that it sees 2024 as a "transition year with continued investments in both capacity ramp and technology." ASML expects major gains in 2025 as it benefits from its work this year.

A weak point for ASML is rising tensions between the U.S. and China and its implications for the chip market. However, many of the world's top foundries are working to build factories in the U.S., which could secure ASML's business over the long term. Meanwhile, the company's monopoly over a critical area of chip development is too good to ignore.

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

Intel and ASML have vastly different positions in AI. One is expanding in chip design and manufacturing, while the other has a monopoly on the equipment necessary to produce AI graphics processing units (GPUs).

However, Intel's recent declines suggest ASML's stock might be the more reliable buy right now. Intel is under intense pressure to improve its financial situation while competing with Nvidia, AMD, and TSM.

Data by YCharts.

The above chart shows Intel's volatility over the last six months, with its price-to-earnings ratio (P/E) recently soaring to more than 86. The chart indicates ASML is more consistent and a 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 better AI stock to buy this month.

Should you invest $1,000 in Intel right now?

Before you buy stock in Intel, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Intel wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $711,657!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of August 12, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML, Alphabet, Amazon, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.