It is almost impossible to read or listen to anything even remotely related to artificial intelligence (AI) and not find a reference to Nvidia. The company’s graphics processing unit (GPU) chipsets are perhaps the most important architectural element used in generative AI.
You don’t believe me? Industry research suggests that Nvidia held 98% of GPU shipments over the past two years; Meanwhile, Jon Peddie Research estimates that Nvidia has 88% of the GPU market. With a stat line like this, is it fair to say that Nvidia is the better opportunity in AI? Maybe.
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But given that Nvidia’s stock has gained more than 800% in the past two years, I tend to think the music is going to slow down at some point. Below, I’ll outline two AI opportunities that I think are poised to expand over the next few years and give Nvidia a run for its money. Let’s dig!
The first company on my list of top AI stocks is Advanced microdevices(NASDAQ:AMD). Over the past couple of years, AMD has been frequently compared to Nvidia – a comparison that I don’t find particularly comparable.
Since the dawn of the AI boom, Nvidia’s main source of growth has come from its H100 and H200 GPUs. As I mentioned above, Nvidia’s one-two GPU architecture has helped the company capture almost the entire market. Although Nvidia’s computing and networking products are indeed quite powerful, the lack of competition has also helped the company gain such a lead in the market.
AMD has quietly built its own GPU empire over the past year, but it’s nowhere near the size of Nvidia’s. In my eyes, this could soon change. AMD’s answer to Nvidia’s H100 and H200 GPU combo is its own chip accelerator dubbed the MI300. When the MI300 launched earlier this year, AMD management projected revenue of around $2 billion. But during the company’s third-quarter earnings conference call a few weeks ago, AMD CEO Lisa Su suggested that the MI300 is evolving so quickly that the company’s data center GPU business company is now on track to generate $5 billion in revenue this year.
The best part is that many of AMD’s major customers adopting the MI300 architecture are also Nvidia customers. Add to that the fact that there could be more than $1 trillion in AI infrastructure spending over the next few years, and AMD appears well-positioned to continue to capture additional market share as it expands the operation of GPUs in its data center.
Yet despite the positive narrative, AMD stock doesn’t seem to be getting much love. Currently, AMD shares are trading at a forward price/earnings ratio (P/E) multiple of 27.1 – well below Nvidia’s forward P/E ratio of 36.1.
I think investors don’t see the forest behind the trees when it comes to investing in AMD. While I don’t think the company will overtake Nvidia, I do think AMD has an opportunity to gain momentum by releasing next-generation GPU products and becoming a more serious competitor to Nvidia over time.
I think AMD’s valuation relative to Nvidia suggests that investors are overlooking the company’s future growth prospects. To me, AMD stock looks reasonable at these levels, and I think it’s an attractive buy for investors with a long-term time horizon.
Image source: Getty Images.
Next on my list is one of Nvidia’s peers in the “Magnificent Seven”, Amazon(NASDAQ:AMZN). While Amazon is primarily known for its e-commerce marketplace, the company is also a dominant force in cloud computing. Amazon Web Services (AWS) is on track to generate more than $100 billion in revenue this year. What’s even better is that AWS operating profits are accelerating even faster than sales.
This dynamic has endowed Amazon with tens of billions in free cash flow and a balance sheet of $88 billion in cash and equivalents. While this is encouraging, I think the party has only just begun. Amazon is aggressively deploying its profits in a number of capital (capex) investments, namely billion-dollar data center infrastructure projects in combination with building its own training and development chips. internal inference.
That’s right, Amazon builds its own chips. Frankly, I think this is a development that gets very little media coverage and has been entirely overshadowed by Nvidia’s narrative. Along the same lines as AMD, I think Amazon’s pursuit of the chip market could become a headwind for Nvidia in the long term. As more GPU architectures are introduced to the market, it is reasonable to believe that Nvidia’s control over pricing power will weaken, leading to a deceleration in revenue and profit margins. .
AI represents a lucrative opportunity for Amazon to further strengthen its various business segments, and yet its valuation suggests that this opportunity is not really integrated into the company’s prospects.
I believe AI will help Amazon become an even more efficient and profitable company in the long term. But right now, Amazon is trading at historically cheap levels based on price to free cash flow. I think Amazon is an underappreciated opportunity in AI, and one that’s trading too cheaply to pass up right now.
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They just revealed what they think is the 10 best stocks for investors to buy now… and Advanced microdevices makes the list – but there are 9 other actions you may be overlooking.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions on Amazon and Nvidia. The Motley Fool holds positions and recommends Advanced Micro Devices, Amazon and Nvidia. The Mad Motley has a disclosure policy.
