Nvidia has garnered so much attention with the artificial intelligence (AI) revolution that it has become easy to ignore other attractive opportunities.
It’s nearly impossible to read or listen to anything remotely related to artificial intelligence (AI). do not have find a reference to Nvidia. The company’s graphics processing unit (GPU) chipset is perhaps the most important part of the architecture used in generative AI.
can’t believe it? According to industry research, Nvidia accounted for 98% of GPU shipments over the past two years. Meanwhile, Jon Peddie Research estimates that Nvidia owns 88% of the GPU market. Looking at statistics like these, can we say that Nvidia has the biggest opportunity for AI? Maybe.
But considering NVIDIA’s stock price has risen over 800% over the past two years, I think music will slow down at some point. Below, we outline two AI opportunities that will emerge and benefit Nvidia over the next few years. Let’s dig in!
1. Advanced microdevices
The first company on my list of top AI stocks is advanced micro device (AMD 0.63%). AMD has been frequently benchmarked against Nvidia over the past few years, but this comparison doesn’t seem particularly apples-to-apples.
Since the early days of the AI boom, Nvidia’s primary source of growth has been from its H100 and H200 GPUs. As mentioned above, Nvidia’s one-two punch GPU architecture has helped the company capture nearly the entire market. While Nvidia’s computing and networking products are certainly very powerful, one of the factors that helped the company gain such a large lead in the market was its lack of competition.
AMD has been quietly building its own GPU empire over the past year or so, but it’s nowhere near the scale of Nvidia. In my eyes, that may change soon. AMD’s answer to Nvidia’s H100 and H200 GPU combo is its own chip accelerator called MI300. When MI300 launched earlier this year, AMD executives were aiming for around $2 billion in revenue. However, during the company’s third-quarter earnings call a few weeks ago, AMD CEO Lisa Su said that the scale of MI300 is growing so rapidly that the company’s data center GPU business is now expected to be the largest in sales this year. hinted that it is on pace to reach $5 billion.
The best part about this is that many of AMD’s major customers with MI300 architecture are also Nvidia customers. Given that more than $1 trillion in spending on AI infrastructure could be expected over the next few years, AMD is well-positioned to continue gaining further market share while expanding GPU operations in data centers. It looks like.
However, despite the positive story, AMD stock doesn’t seem to have much support. AMD stock currently trades at a forward price/earnings (P/E) ratio of 27.1x, which is much lower than NVIDIA’s forward price/earnings (P/E) ratio of 36.1x.
I think investors are not seeing the forest for the trees when it comes to investing in AMD. I don’t think the company intends to overtake Nvidia by any means, but AMD has an opportunity to gain momentum as it releases next-generation GPU products and becomes a more serious competitor to Nvidia over time. I think there is.
I think AMD’s valuation compared to Nvidia suggests that investors are discounting the company’s future growth prospects. In my eyes, AMD stock looks reasonable at these levels and is an attractive buy for investors with a long-term horizon.
Image source: Getty Images.
2. Amazon
Next on my list is one of Nvidia’s friends in “The Magnificent Seven.” Amazon (AMZN -0.64%). Amazon is primarily known for its e-commerce market, but it is also a major player in cloud computing. Amazon Web Services (AWS) is on track to generate more than $100 billion in revenue this year. Even better, AWS’s operating profit is accelerating faster than its revenue.
This dynamic has given Amazon tens of billions of dollars in free cash flow and a balance sheet of $88 billion in cash and equivalents. While this is encouraging, I think the party is just beginning. Amazon is actively allocating its profits to a number of capital expenditure (Capex) investments, a $1 billion data center infrastructure project combined with building its own training and inference chips.
That’s right, Amazon is developing its own chips. Frankly, I think this is a development that has received very little coverage and has been completely overshadowed by the Nvidia saga. Similar to AMD, I think Amazon’s pursuit of the chip market could be a headwind for Nvidia in the long term. As more GPU architectures are introduced to the market, it’s natural to think that Nvidia’s dominance of top pricing power will weaken, resulting in lower revenues and margins.
While AI represents a lucrative opportunity for Amazon to further strengthen various business areas, its valuation suggests that the opportunity is not really factored into the company’s outlook.
I think AI will help Amazon become a more efficient and profitable business in the long run. But Amazon is currently trading at historically low levels on a price-to-free cash flow basis. I think Amazon is an undervalued opportunity in the AI space, and it’s currently trading at a bargain that’s too good to pass up.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Adam Spatacco has held positions at Amazon and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, and Nvidia. The Motley Fool has a disclosure policy.
