Forget AMD: 2 Artificial Intelligence (AI) Stocks to Buy Instead

These companies are carving out lucrative positions in AI, and you won’t want to miss out.

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This article first appeared on our U.S. website and was written by Dani Cook.

Chip stocks have soared since last year alongside a boom in artificial intelligence (AI). As a leader in the industry, Advanced Micro Devices(NASDAQ: AMD) stock has risen 28% since last June, outperforming the S&P 500‘s increase of 24% in the same period. The company has rallied investors with a promising role in graphics processing units (GPUs), the chips necessary for training AI models.

But while AMD stock’s growth has benefited current investors, it has also raised the price of entry for new ones.

AMD PS Ratio Chart

Data by YCharts

This chart uses price-to-sales (P/S) and forward price-to-earnings ratios to compare AMD’s valuation to two other companies active in AI, Intel (NASDAQ: INTC) and Amazon (NASDAQ: AMZN). For both metrics, Intel and Amazon are a better value than AMD. So, while AMD likely has a bright future in AI over the long term, it could be worth investing in alternative AI stocks that offer more bang for your buck.

So, forget AMD and consider buying one of these artificial intelligence stocks instead.

1. Intel

You might be surprised to see Intel on this list after its performance over the last decade. The company is coming out of a slump that saw its stock plunge 47% since 2021, alongside dips in revenue and lost market share in what was once its bread and butter, the central processing unit (CPU) market.

However, recent restructuring indicates it’s not over for Intel, and the company could be on the road to recovery. Meanwhile, its stock is one of the biggest bargains in AI right now, making it hard to ignore as a long-term option.

Intel is preparing to invest $100 billion in building chip manufacturing plants throughout the U.S. The company has secured close to $20 billion in federal grants and loans, with hopes of securing another $25 billion in tax breaks. The chipmaker is partially backed by the federal CHIPS Act, a 2022 initiative to increase the U.S.’ foundry capacity.

Intel’s manufacturing expansion is particularly promising for its AI potential. CEO Pat Gelsinger expects its coming Ohio plant to become “the largest AI chip manufacturing site in the world” as early as 2027. Meanwhile, prioritizing chip fabrication differentiates Intel from rivals like Nvidia and AMD, which are focused on design over manufacturing. Intel could see major boosts to earnings in the coming years as AI growth continues to increase demand for chips.

The company has a long way to go before seeing significant returns on its hefty investment, but for investors, it could be worth getting in on the ground floor to potentially profit from its comeback.

2. Amazon

Amazon is one of the most compelling AI stocks right now, with its cloud platform, Amazon Web Services (AWS), forging a powerful role in the industry. Meanwhile, the company’s P/S ratio of about 3 makes it a bargain buy despite its share price soaring 45% over the last 12 months.

The retail giant’s business has exploded since last year. Amazon’s operating income has risen more than 1,300%, with free cash flow doubling to nearly $46 billion. The company has enjoyed significant gains in its e-commerce segments, which benefited from easing inflation and management’s cost-cutting measures.

However, all eyes have been on AWS in recent months. Its leading 31% market share in cloud computing potentially gives it an edge in AI, which the company is taking full advantage of by expanding AWS. Amazon is increasing its cloud capacity by investing billions into building more data centers worldwide.

The tech giant has a 15-year plan to develop AWS’ infrastructure in Taiwan. Meanwhile, Amazon has committed to investing $13 billion on a similar project in India, which will scale up its cloud infrastructure in one of the faster-growing data center markets in the world.

In addition to significant cash reserves and a dominant position in the cloud market, Amazon’s stock is worth considering based on the range of ways it could boost its business with the generative technology. Expanding AI capabilities could allow it to better analyze shopping trends and more accurately recommend products on its retail site, improve shipping logistics, expand its AI offerings on AWS, and offer more pointed advertising on its streaming service, Prime Video.

Amazon is on a promising growth trajectory in AI and is worth investing in over AMD this July.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool recommends Advanced Micro Devices, Amazon, and Intel. The Motley Fool has a disclosure policy.

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