Nvidia (NASDAQ:NVDA) This is one of the easiest ways to invest in the fast-growing artificial intelligence (AI) market. Most of the world’s top AI companies, including: microsoftChatGPT creator OpenAI, and Amazon –Currently using high-end GPUs to process complex AI tasks. This market is growing rapidly as more organizations harness the power of generative AI tools to predictively generate new content, rather than simply crunching large amounts of data.
As such, analysts expect Nvidia’s revenue and adjusted earnings to increase 119% and 268%, respectively, in fiscal 2024 (ending in January of this year). As the AI market continues to expand, the company expects its revenue and adjusted profit to further increase by 58% and 69%, respectively, in fiscal 2025. These growth rates are noteworthy, but at 30 times expected earnings and 16 times next year’s sales, Nvidia’s stock price is by no means a bargain.
So investors looking for exposure to the AI market at lower valuations might consider buying these three stocks. super microcomputer (NASDAQ:SMCI), taiwan semiconductor manufacturing (NYSE:TSM)and alphabet (NASDAQ:GOOG) (NASDAQ:Google) — instead of Nvidia.
1. Super microcomputer
Super Micro Computer (commonly known as Supermicro) manufactures high-performance servers. It controls a much smaller portion of the global server market. hewlett packard enterprise and Dell Technologiesbut has carved out a high-growth niche market with dedicated AI servers.
Supermicro’s long-standing partnership with Nvidia has given it access to the chipmaker’s top data center GPUs ahead of its larger competitors. As a result, sales of pre-built AI servers have skyrocketed as the AI market expands.
Supermicro’s sales will jump 46% in fiscal 2022 (ending June 2022), increase 37% in fiscal 2023, and analysts expect it to accelerate to 103% growth in fiscal 2024. The company’s adjusted EPS more than doubled in both FY2022 and FY2023. However, analysts predict a 70% growth in 2024. But at $535 a share, Supermicro’s stock price is just 27 times this year’s earnings.
Supermicro may seem more expensive than HPE or Dell, but it’s not a slow-growing server company. Rather, the company is an AI company closely tied to his Nvidia, and should continue to grow as long as the market is hungry for his Nvidia-powered AI servers.
2. Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing Corporation, commonly known as TSMC, is the world’s largest and most technologically advanced contract chip manufacturer. The company is Nvidia, Advanced Micro Devices, appleand Qualcomm.
Nvidia designs its own GPUs, but outsources production to TSMC’s foundries, which can make the world’s smallest, densest, and most power-efficient chips. AMD, which is trying to catch up with Nvidia with its own data center GPUs, also outsources production of those chips to TSMC. OpenAI is even reportedly in talks with TSMC to form a joint venture to manufacture its own AI chips.
Simply put, TSMC is a cornerstone of the global semiconductor and AI markets. However, its growth is also cyclical. As the smartphone and PC markets cooled, TSMC’s sales and profits in 2023 decreased by 9% and 21% in US dollar terms, respectively. But the company expects sales to increase by more than 20% in 2024 as these markets recover, ramping up production of its latest 3nm chips and benefiting from “robust” growth in the AI market. There is.
Analysts expect TSMC’s sales and profits to rise 23% and 10%, respectively, this year. But the company’s stock trades at just 18 times forward earnings, making it a cheaper way to profit from the expanding AI market than Nvidia.
3. Alphabet
Google, an Alphabet company, owns the world’s largest search engine and online advertising business and the third largest cloud infrastructure platform. Its vast ecosystem also includes the world’s most popular streaming video platform (YouTube), the top mobile operating system (Android), and the leading webmail service (Gmail).
Google ties all these services together with its own AI algorithms and expands into the generative AI market with Bard chatbots and Gemini’s large-scale language models. The company is already one of the world’s largest buyers of Nvidia’s data center GPUs and is developing its own AI accelerators to gradually reduce its reliance on those chips.
Alphabet’s revenue in 2023 was only up 9% as Google’s advertising business suffered from severe macro headwinds throughout the first half. However, growth accelerated again in the second half of the year, as the cloud platform, which had been strengthened with new AI tools, continued to achieve double-digit sales growth along with an increase in operating margin.
Analysts expect Alphabet’s 2024 sales and profits to rise 11% and 16%, respectively. While these growth rates are stable, they trade at just 21 times forward earnings, making them another cheap play in the growing AI market.
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Leo Sun has held positions at Amazon, Apple, and Qualcomm. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Microsoft, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Super Micro Computers. The Motley Fool has a disclosure policy.
“3 Promising AI Stocks That Are Cheaper than NVIDIA” was originally published by The Motley Fool.
