Nvidia's AI Dominance Challenged: Competitors and Investors Eye Future Growth

Should You Forget Nvidia and Buy 2 Other Artificial Intelligence (AI) Stocks Right Now? | The Motley Fool

There's no denying that Nvidia (NVDA 2.15%) is the poster child of the artificial intelligence (AI) craze. The semiconductor business elevated to new heights thanks to sizable investments from multiple tech giants looking to build out their network infrastructure and processing capabilities, leading to monster gains for the company and its stock. In the past five years, shares of Nvidia have gone bonkers, skyrocketing 2,370% (as of Nov. 27). The company has been jostling with Apple for the title of the world's biggest market cap. But that huge run-up means it will be much harder to replicate the growth going forward. After an unprecedented run, should new investors considering Nvidia stock perhaps forget it and instead buy two other top AI stocks right now? Nvidia made a name for itself selling the graphics processing units (GPUs) that power vast computing systems used to help train AI models. The business has a ridiculous 88% market share in this sector. And the race among other companies to invest aggressively behind this technological trend resulted in strong demand for Nvidia products and services. Last quarter (the third in its 2025 fiscal year, ended Oct. 27), it reported revenue of $35.1 billion, a figure that was up 94% year over year. Nvidia's profits are maybe even more impressive. The business posted a stellar operating margin of 62%, helping net income surge 109% compared to the same period of fiscal 2024. The market's love affair with Nvidia has led to tremendous share gains. And this has resulted in a steep valuation. The stock trades for a price-to-earnings ratio (P/E) of 52.6, a 58% premium to the Nasdaq-100 index. Some might argue that the valuation is reasonable. But investors need to consider Nvidia's competitive threats, namely that some of its biggest customers, like Microsoft and Amazon, among others, are working on developing their own AI chips. This introduces a risk that Nvidia will see demand, and its growth, start to diminish as we look ahead. Nvidia is deservedly getting a lot of love these days, as its stock powers higher with strong revenue and earnings growth. But investors who might have missed the rally shouldn't get distracted from businesses that are already leaders in the AI race. I'm talking about Alphabet (GOOGL -0.17%) (GOOG -0.19%) and Meta Platforms (META 0.90%), two of the most dominant internet companies on the face of the planet. The advantage these two companies possess is that they already have massive user bases. Alphabet says that it has 15 different products and services that serve at least a half-billion people each. And Meta's family of social media apps collectively counts 3.29 billion daily active users. There might be no businesses that have this type of broad reach to immediately introduce AI features to. Alphabet has been making AI investments for decades, but it increased its focus in this area around the time CEO Sundar Pichai took over about a decade ago. Not only does its Gemini large language model (LLM) power all of its AI offerings, but AI also permeates a lot of what Google Cloud does, resulting in strong customer growth. Meta, on the other hand, has a Meta AI assistant targeted to users seeking to find information or generate images. And it already has over 1 million advertising customers using its generative AI tools to more effectively target their ads to the right users. Both of these businesses possess vast financial resources to continue pushing forward. Not only do they generate copious amounts of free cash flow, but they also have pristine balance sheets. It makes sense that the leadership of these companies isn't holding back when it comes to plowing capital into AI-related investments. If you aren't yet convinced about buying these two companies, then consider their valuations. As of this writing, Alphabet and Meta trade for P/E multiples of 22.4 and 26.8, respectively, far lower than Nvidia's. This makes them both top AI stocks to consider buying instead of going with Nvidia.

Better Buy Now: Nvidia or the Other 29 Stocks in the Dow Jones Industrial Average? | The Motley Fool

But with Nvidia up 910% since early last year, some investors may be wondering if the rally has gone too far and investing in other stocks may be a better option. Here are some reasons why Nvidia could still be a growth stock worth buying now, but why investing in the Dow may be an even better buy for some investors. Nvidia became the most valuable company in the world by transforming from a gaming and graphics visualization company to developing cutting-edge products that are powering advanced artificial intelligence (AI) applications. The simplest reason to buy Nvidia is that you believe it will remain a leader in AI, and that its customers will be able to monetize AI to grow profits and buy even more of Nvidia's products in the future. Despite concerns that the AI megatrend is slowing down, Nvidia continues delivering impeccable sales and earnings growth. Nvidia's stock price is up 130.7% over the last year, but its earnings are up 112.6%, so its valuation is still somewhat reasonable. But analysts expect growth to cool, calling for $4.37 in fiscal 2026 earnings per share (EPS) compared to $2.95 in fiscal 2025 (Nvidia just reported third-quarter fiscal 2025 results). Still, that represents 48% earnings growth in a single year. The most straightforward way for Nvidia to outperform the Dow over time is for its fundamentals to grow into its current valuation. This would mean continuing to grow its earnings at a rate that can support outsized stock gains already seen without further stretching the valuation. Here's an example of how that could play out. Let's say that the cyclicality of the semiconductor industry and some margin erosion from the competition leads Nvidia to grow earnings by, on average, 25% over the next five years. If its stock price goes up by 20% on average during that time frame, it will likely outperform the Dow and the S&P 500 -- which has averaged around a 10% annual gain over the long term and an even better 13.5% over the last decade.It would also see its valuation drop from a 56.1 price-to-earnings (P/E) ratio to a 45.8 P/E ratio. If it kept up those same growth rates over 10 years, its P/E would be 37.3 after a decade. There is nothing more powerful in the stock market than sustained earnings growth. Nvidia doesn't have to keep doubling its earnings every year in order to be a tremendous investment, but right now, it also can't afford to see its growth fall off by much, or the stock could begin to look overvalued. While you could buy individual (or fractional) shares of all other 29 components of the Dow, a far simpler approach would be to invest in a Dow exchange-traded fund (ETF) like the SPDR Dow Jones Industrial Average ETF Trust (DIA 0.53%). The ETF charges a 0.16% expense ratio and has a respectable $37.7 billion in net assets. Because the Dow is a price-weighted index, Nvidia is a relatively small holding, making up just 2.1% of the index. So investing $1,000 in the SPDR Dow Jones Industrial Average ETF Trust basically means putting $979 in the other 29 components and $21 in Nvidia. The Dow is a solid choice for folks looking for more value and income than the other index. The SPDR Dow Jones Industrial Average ETF Trust has a 26.2 P/E ratio and a 1.7% yield. This is a better value and offers more passive income than the 29.8 P/E ratio and 1.3% yield from the Vanguard S&P 500 ETF or the 41.2 P/E ratio and 0.6% yield from the Invesco QQQ Trust -- which tracks the performance of the Nasdaq-100 (the 100 largest components in the Nasdaq Composite, excluding financial stocks). In just a couple of years, Nvidia went from a notable tech stock to the most valuable company in the world -- disrupting the balance of the S&P 500, the Nasdaq Composite, and now the Dow Jones Industrial Average. This is great news for investors who are bullish on Nvidia, but not for folks who believe Nvidia is overvalued. Since Nvidia makes up so little of the Dow, buying a Dow ETF is still a great way to get exposure to top companies without allocating too much to Nvidia. Other low-cost ETF ideas that may be worth a look if you're interested in more income and value are the Vanguard Value ETF, the Vanguard Mega Cap Value ETF, and the Vanguard High Dividend Yield ETF. Nvidia is arguably the most unique company we've seen in decades because it has run up so fast, and yet, earnings are driving the narrative. In past years, we've seen exciting companies packed with potential produce outsized gains. The investment case for these companies rested on the expectation of quick revenue expansion and future profits. Nvidia, on the other hand, is delivering truly remarkable earnings growth right before our eyes, and doing so in a big way. In its recent quarter, Nvidia delivered a record net income of $19.3 billion. For context, Microsoft's recent quarter saw $24.7 billion in net income. Nvidia is one of the most profitable companies in the world, and it is also growing faster than all of its mega-cap tech peers. Until that changes, Nvidia will likely continue rewarding its investors. But that doesn't mean you have to buy the stock if it doesn't suit your risk tolerance.

Here Are My Top Artificial Intelligence (AI) Stocks to Buy Right Now (Hint: Nvidia's Not on the List) | The Motley Fool

Nvidia has gotten so much attention during the artificial intelligence (AI) revolution, it's become easy to gloss over other compelling opportunities. It's nearly 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 single most important piece of architecture used in generative AI. Don't believe me? Industry research suggests that Nvidia held 98% of GPU shipments over the last two years; meanwhile, Jon Peddie Research estimates that Nvidia owns 88% of the GPU market. With a stat line like this, is it fair to say that Nvidia is the best AI opportunity out there? Maybe. But considering shares of Nvidia have gained more than 800% over the last two years, I'm inclined to think the music is going to slow down at some point. Below, I'm going to outline two AI opportunities that I think are poised to break out over the next several years and give Nvidia a run for its money. Let's dig in! The first company on my list of top AI stocks is Advanced Micro Devices (AMD 0.63%). Over the last couple of years, AMD has been frequently benchmarked against Nvidia -- a comparison that I don't find to be particularly apples-to-apples. Since the dawn of the AI boom, Nvidia's primary source of growth has come from its H100 and H200 GPUs. As I alluded to above, Nvidia's one-two punch GPU architecture helped the company acquire nearly the entire market. While Nvidia's compute and networking products are indeed quite powerful, one thing that also helped the company gain such an enormous lead in the marketplace was a lack of competition. AMD has been quietly building its own GPU empire over the last year or so, but it's nowhere near the size of that of Nvidia. In my eyes, that could soon change. AMD's answer to Nvidia's H100 and H200 GPU combo is its own chip accelerator dubbed MI300. When the MI300 launched earlier this year, AMD's management was guiding for revenue around $2 billion. But during the company's third-quarter earnings call a few weeks ago, AMD CEO Lisa Su hinted that the MI300 is scaling so quickly that the company's data center GPU business is now on pace for $5 billion in sales this year. The best part about this is that many of AMD's major customers adopting the MI300 architecture are also customers of Nvidia. When you layer on top that there could be more than $1 trillion of AI infrastructure spend over the next few years, AMD looks well-positioned to continue capturing incremental market share as it scales its data center GPU operation. Yet despite the positive narrative, AMD stock doesn't seem to be getting much love. Right now, AMD shares trade at a forward price-to-earnings (P/E) multiple of 27.1 -- far lower than Nvidia's forward P/E ratio of 36.1. I think investors are missing the forest for the trees when it comes to investing in AMD. While I don't think the company is going to speed past Nvidia by any means, I do think 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 AMD's valuation relative to Nvidia suggests that investors are discounting the company's future growth prospects. In my eyes, AMD stock looks reasonable at these levels, and I think it is a compelling buy for investors with a long-term time horizon. Next up on my list is one of Nvidia's peers in the "Magnificent Seven," Amazon (AMZN -0.64%). 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 pace to generate over $100 billion in revenue this year. What's even better is that AWS' operating profits are accelerating even faster than sales. This dynamic has equipped Amazon with tens of billions in free cash flow and a balance sheet that boasts $88 billion in cash and equivalents. Although this is encouraging, I think the party is just getting started. Amazon is aggressively deploying its profits into a number of capital expenditure (capex) investments -- namely, billion-dollar data center infrastructure projects in combination with building its own in-house training and inferencing chips. That's right, Amazon is building its own chips. Candidly, I think this is a development that gets very little coverage, and one that has become 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 run. As more GPU architecture is introduced to the market, it's reasonable to believe that Nvidia's grasp on top pricing power will weaken, thereby resulting in decelerating revenue and profit margins. AI represents a lucrative opportunity for Amazon to further strengthen its various business segments, and yet its valuation suggests the opportunity is not really baked into the company's outlook. I think AI will help Amazon become an even more efficient, profitable business in the long run. But right now, Amazon is trading at historically cheap levels on a price-to-free cash flow basis. I think Amazon is an underrated opportunity in the AI realm, and one that is trading at too much of a bargain to pass up right now.

Nvidia stock extends November gains as investors bet on 2025 AI dominance

Nvidia shares nudged higher in early Friday trading, keeping the stock on pace for a modest November gain, as investors step back from the tech giant's recent earnings report and assess its leadership role in the AI trade and its broader place in a next year's expected bull market. Nvidia (NVDA) has been the single-large beneficiary of the AI boom, which began with the launch of OpenAI's ChatGPT chatbot in November of 2022, thanks to demand for its next-generation chips and processors which power the training and inferencing of the world's biggest AI systems. Investors are betting big that AI will prove to be a transformative technology equal or greater to that of the birth of internet in the late 1990s, and have added a collective $8 trillion in market value to the six biggest tech stocks over the past two years. Nvidia, for its part, has taken $2.9 trillion of that gain, propelling it from a mid-sized maker of gaming chips to the world's most-valuable company with a market value of $3.48 trillion, a level that sits just shy of the entire value of Britain's benchmark FTSE 100 index of Europe's biggest companies. It's from those lofty heights, however, that investors will view that group's upcoming financial year, which begins in February, and the revenue prospects for its signature product, the Blackwell line of processors which are effectively considered the 'iPhone of AI.' Blackwell is faster, more efficient, and uses less energy than Nvidia's legacy line of Hopper chips, and are thus tied to seemingly insatiable demand from the world's biggest hyperscalers like Microsoft (MSFT) , Amazon (AMZN) , Meta Platforms (META) and Google parent Alphabet (GOOGL) . Wall Street analysts expect Blackwell sales to add "several billions" to Nvidia's fourth quarter revenue tally, before accelerating to around $62 billion in 2025 and $97 billion the following year. Profits from the market-leading chips, which are the veritable heartbeat of the AI investment theme, are expected to be equally impressive, and even with the costs associated with ramping production, Nvidia will likely produce gross margins in the low 70% range over the first half of next year, with a mid-70% forecast over the final six months. $100 billion profit target Putting that into context, Nvidia reported net income of $4.37 billion in the fiscal year that ended in January of 2023 and included the launch of ChatGPT. By the end of the next fiscal year, that figure is forecast to rise to $102 billion. What might be even more amazing is that fact that, for all the expected growth that is priced into Nvidia shares, they're really not that expensive when compared to their Magnificent 7 peers. Nvidia trades at a multiple of 46.3 times its twelve month earnings forecast, a level that is only modestly higher than the 40.7 times multiple attached to Amazon and the staggering 136.5 times multiple tagged to Elon Musk's Tesla (TSLA) . Related: Goldman Sachs analyst leads Nvidia price target overhauls after earnings It's also a cash cow with very little debt, leaving it ample room for stock buybacks that reward investors for their longer-term views. Nvidia is likely to generated $62 billion in free cash flow in its coming fiscal year, according to GimmeCredit analyst Dave Novosel, with around $36 billion of that set aside for share buybacks. That doesn't mean its bulletproof, of course, and investors have reacted with caution to its fiscal third quarter earnings report earlier this month, which showed a slowing revenue growth rate and moderating profit margins, while perhaps pricing in the impact of tariff and tech sector trade barriers expected from the incoming administration of President-elect Donald Trump. Trade war concerns Nvidia, which guides investors on revenue and profit forecasts for only the coming quarter, topped Wall Street estimates by only 1.5% for its end-January revenue tally of $37.5 billion. That compares to forecast beats, when compared to Street estimates, of between 5% and 20% over the past two years. On the tariff front, Nvidia is susceptible, as the world's biggest company, to finding itself at the center of a tech trade war between Washington and Beijing now that Trump has vowed to impose stiff levies on China imports, as well as from nascent tech-producing hubs in Mexico, shortly after taking office in November. Related: Nvidia earnings adjust chances for S&P 500 record year Reuters reported earlier this week that Nvidia's vice president of Worldwide Field Operations Jay Puri met with China officials as President Joe Biden prepares new tech export restrictions, expected to be extended under Trump, that could trigger reprisals from Beijing that disrupt global supply chains. CEO Jensen Huang, however, appeared confident that his company would find a way out of the trade war crosshairs during an academic event in Hong Kong last week. 'Unique opportunity' "Open science in global collaboration ... has been around for a very long time," told an event at the Hong Kong University of Science and Technology. "I don't know what's going to happen in the new administration, but whatever happens, we'll balance simultaneously compliance with laws and policies, continue to advance our technology and support and serve customers all over the world." Still, Nvidia shares have fallen around 7% since its October quarter report, compared to a modest 0.5% gain for the Nasdaq and a 1.4% advance for the S&P 500. More AI Stocks: For Benchmark analyst Cody Acree, however, trade and performance headwinds won't undermine what he considers the "compelling value [of Nvidia stock] for thoughtful investors willing to look past the near-term noise." Acree, who carries an 'overweight' rating with a $190 price target, says the selloff is "an opportunity in the industry's most unique investment property that is a critical key to the early stages of AI transforming how we, as a people, interact with technology." Nvidia shares were last marked 1% higher in premarket trading to indicate an opening bell price of $136.70 each, a move that would stretch the stock's November gain to 2.9% and its fourth quarter advance to 12.5%. Related: Veteran fund manager sees world of pain coming for stocks

The Success of Nvidia's Blackwell Isn't the Only Reason to Buy the Stock | The Motley Fool

Nvidia's (NVDA 0.66%) strong artificial intelligence (AI)-related growth has driven the shares up 179% so far in 2024, at the time of this writing. The stock trades at a high price-to-earnings ratio of 55, so investors understandably have high expectations for growth heading into the new year. However, Nvidia's new Blackwell generative AI architecture platform, which is expected to trigger the next wave of demand for the company's Blackwell graphics processing unit (GPU) chips, may not fully ramp up until the middle of next year. Still, Nvidia's quarter reveals there is enough momentum with existing products to justify its valuation. Nvidia's revenue grew 94% year over year in fiscal 2025's third quarter, driven by the data center business. But it also posted strong double-digit growth from gaming, professional visualization, and automotive, with automotive revenue surging 72% year over year thanks in part to increased demand for Nvidia's self-driving computing platforms. Data source: Nvidia. YOY = year over year. Nvidia's fiscal year ends in January. The next-generation Blackwell chips are in full production, but most importantly, Nvidia said demand for its current-generation Hopper graphics processing units (GPUs) remains "exceptional." Cloud service providers made up around half of data center sales last quarter, with cloud companies deploying Nvidia's H200 chips to meet growing demand for AI workloads. "Hopper demand will continue through next year, surely the first several quarters of the next year," CEO Jensen Huang said. Nvidia is benefiting as companies upgrade to the latest GPU technology to maintain a competitive edge. Cloud service providers like Amazon and Alphabet's Google need to have enough computing capacity to meet the demand for AI services, and because Nvidia continues to be the runaway leader in GPUs, it is able to price its products to earn incredible margins. Nvidia's trailing-12-month net income now totals $63 billion! Although other non-data center segments contribute a smaller amount to Nvidia's revenue, it's great to see these businesses posting strong growth as investors wait for Blackwell. Some investors might forget that gaming was Nvidia's largest business just two years ago. It posted a 15% year-over-year revenue increase last quarter, driven by strong back-to-school sales for GeForce RTX-powered computers, and the company is preparing to meet demand for the holidays. Revenue has exceeded Nvidia's guidance by a few billion each quarter this year. Assuming that trend holds, Nvidia could report between $39 billion and $40 billion in revenue next quarter, based on company guidance calling for $37.5 billion. Analysts currently expect the company to report $38 billion, representing a 72% year-over-year increase. Management expects to ship more Blackwell chips over the next few quarters, as production ramps up. This seems to suggest Blackwell may not fully hit its stride in terms of revenue contribution until the middle of the year. The consensus estimate has Nvidia's revenue growing 49% in fiscal 2026 (which ends in January). Overall, demand trends look solid. The demand for Hopper products and gaming should fuel another strong quarter to finish the year and provide a bridge of momentum as Blackwell shipments increase. The stock trades at 33 times next year's earnings estimate, which seems like a steal for this top AI chip supplier.

Will Nvidia's Blockbuster Results Be Enough to Send the Stock Higher? | The Motley Fool

Nvidia (NVDA 2.15%) has been in sizzling form on the stock market in 2024, thanks to the stunning growth the company has been clocking quarter after quarter, which explains why the market was awaiting its fiscal 2025 third-quarter results (for the three months ended Oct. 27) with bated breath. The semiconductor giant's report came out on Nov. 20, and not surprisingly, it delivered stronger-than-expected results on the back of healthy demand for its graphics processing units (GPUs) that are being used in data centers to train and deploy artificial intelligence (AI) models. However, the initial investor reaction to the company's earnings seems to be negative, as the stock has headed lower in the two sessions following its results. Does this mean Nvidia's red-hot rally has hit a speed bump? Or will the stock overcome this hiccup and resume its journey north to deliver more gains to investors in 2025? Let's find out. Nvidia reported record quarterly revenue of $35.1 billion in fiscal Q3, an increase of 94% from the year-ago period. The number was well ahead of the company's guidance of $32.5 billion and also beat consensus estimates of $33.17 billion. Nvidia's non-GAAP (generally accepted accounting principles) earnings increased by 103% from the prior-year period to $0.81 per share, which was well ahead of the $0.75-per-share consensus estimate. The guidance was the icing on the cake, as Nvidia expects fiscal Q4 revenue to land at $37.5 billion at the midpoint. That was slightly higher than the $37 billion Wall Street estimate. However, the stock slipped in premarket trading for a couple of reasons. First, Nvidia's revenue guidance for the current quarter would translate into a year-over-year increase of almost 70% from last year's reading of $22.1 billion. That points toward a relative slowdown in the company's growth. Second, the company has guided for a non-GAAP gross margin of 73.5% for the current quarter. That figure stood at 76.7% in the year-ago period. Savvy investors, however, should consider looking past both these factors. The company is still growing at a terrific pace, despite having achieved a huge revenue base already. A year-over-year jump of 70% in revenue, though slower than previous quarters, is still quite solid when we consider that its primary rival with a smaller revenue base, AMD, has been growing at a much slower pace. Also, the margin pressure isn't going to last long. The reduced margin Nvidia is forecasting for the current quarter is attributable to the production ramp of its next-generation Blackwell AI chips. The company is looking to maximize output in a bid to meet the huge demand for these chips, and that's going to have a short-term impact on margins. As CFO Colette Kress remarked on the latest earnings conference call: Our current focus is on ramping to strong demand, increasing system availability, and providing the optimal mix of configurations to our customer. As Blackwell ramps, we expect gross margins to moderate to the low 70s. When fully ramp[ed], we expect Blackwell margins to be in the mid-70s. The short-term margin pressure should not linger for long, as Nvidia says that the demand for its Blackwell processors is "staggering," which is why it is "racing to scale supply to meet the incredible demand... [from] customers." The good part is that Nvidia expects to deliver more Blackwell chips than it was originally expecting in 2024. Even then, the company points out that the demand for these chips will continue to exceed supply, and it will continue to work on improving production in 2025. Nvidia is expecting its Blackwell revenue to continue increasing with each quarter going into next year, and it is expected that the quarterly revenue from the chips made on the latest architecture will exceed the previous generation Hopper architecture in April next year. Once the transition from Hopper to Blackwell is complete and Nvidia manages to produce enough of these chips to catch up to the massive demand it's witnessing, it should be able to maintain the healthy growth in its revenue and earnings in 2025, and beyond. Nvidia's fiscal Q4 guidance indicates that it is on track to finish the year with $123.5 billion in revenue (adding the Q4 guidance to its revenue in the first nine months of fiscal 2025). Management's comments seem to have given analysts confidence that it will be able to deliver another solid performance next year. As the chart shows, Nvidia's revenue estimates for fiscal 2026 (which will begin from the end of January 2025) have moved up. Meanwhile, analysts are expecting the company's bottom line to grow another 48% in fiscal 2026 to $4.27 per share. However, if demand for Blackwell processors remains strong and contributes significantly to its top line, there is a good chance that it will be able to exceed Wall Street's forecasts. After all, Nvidia has beaten consensus earnings estimates in each of the last four quarters by consistently delivering stronger-than-expected growth. Blackwell could help it maintain that trend next year, which is why investors can still continue holding shares of Nvidia, or even buy more of it. That's because Nvidia is currently trading at 33 times forward earnings, which is close to the tech-laden Nasdaq-100 index's forward earnings multiple of 31.3. If Nvidia manages to deliver stronger earnings growth and the market decides to reward it with a premium valuation, it should be able to deliver more upside in 2025.

These Supercharged Tech Stocks Still Trade at Attractive Valuations | The Motley Fool

Demand for artificial intelligence (AI) is driving significant gains for leading chip stocks. These companies are playing pivotal roles in the adoption of this technology, and there are still opportunities for investors to make money. Statista estimates the AI chip market will grow more than 30% in 2024, which is significantly outpacing the 16% growth for the broader semiconductor industry. Here are two of the best stocks to profit off this opportunity. Nvidia (NVDA -3.22%) shares are up 186% year to date, at the time of writing, but despite this stellar run, investors shouldn't feel like they have missed the boat. The company's latest earnings report shows demand trends holding strong for this leader in graphics processing units (GPUs), and these are expected to carry over to 2025. "The age of AI is in full steam, propelling a global shift to Nvidia computing," CEO Jensen Huang said. For fiscal Q3, the company exceeded its own guidance, with revenue surging 94% year over year to reach $35 billion. While investors wait for Blackwell, which is the company's new AI computing platform currently in production, it's encouraging that Nvidia's Hopper chips are still in high demand. Nvidia reported that H200 chip sales grew significantly in the quarter, making it the fastest product ramp in the company's history. Blackwell will be a major catalyst for growth next year. CFO Colette Kress said, "Blackwell demand is staggering, and we are racing to scale supply to meet the incredible demand customers are placing on us." This isn't a chip, but a customizable computing platform that includes different types of chips to deliver the computing power needed for generative AI workloads -- one of the major trends in high-performance computing right now. Based on benchmark tests, Blackwell can deliver 2.2 times the performance over Hopper-based chips. Some investors might look at the stock's $3.5 trillion market cap and assume it is expensive, but comparing the share price to Wall Street's earnings estimates, the company's value seems reasonable. Over the next several years, the consensus analyst estimate has the company's earnings growing at an annualized rate of 37%. With the stock trading at 34 times next year's earnings estimate, the stock can still deliver market-beating returns for investors. Shares of Taiwan Semiconductor Manufacturing (TSM -0.61%) are up 91% over the last year. It makes chips for Nvidia and other chip companies, so it is benefiting from the same demand trends in high-performance computing. Revenue grew 36% year over year in Q3, and the company's high margins are fueling even more growth on the bottom line, with earnings up 54%. TSMC attributed its strong quarter to AI-related demand, which may be stronger than investors expected. Management said the revenue contribution from AI server chips is on track to triple for the full year. "As the strong structural AI-related demand continues, we continue to invest to support our customers' growth," CFO Wendell Huang said on the Q3 earnings call. The company must invest today for demand that will come later on, so it's a good sign that it expects capital expenditures to increase to over $30 billion for the full year. The company plays a crucial role in the global supply of chips. It controlled 62% of the global foundry market in Q2 2024, according to Counterpoint Research, and its market share has slightly increased over the last two years. With investment in AI servers expected to grow significantly over the next decade, TSMC has a bright future. The shares trade at a forward price-to-earnings ratio of 27 on 2024 estimates and just 21.5 on next year's consensus. With analysts expecting annualized earnings growth of 31%, TSMC stock is still a solid buy.

Nvidia Stock: Buy, Sell, or Hold? | The Motley Fool

One of the hottest stocks of 2024 is Nvidia (NVDA -1.15%), trading up more than 185% this year, as of this writing. That stock price performance has helped catapult it to become one of the largest companies in the world (as measured by market cap). But investing tends to focus more on the future so, while the semiconductor company and its shareholders are enjoying this great success, the question on many investors' minds right now is whether the stock is a buy, sell, or hold moving forward. Let's take a look at each case to help decide. The sell case for Nvidia largely revolves around future demand for its graphic processing units (GPUs). While the company reports robust demand for its artificial intelligence (AI) chips, the big question is how long will this outsized demand last. There is a race going on among the big cloud computing companies, AI start-ups, and other tech companies to build out the best AI models, which need a lot of computing power and GPUs to facilitate their training. If sometime soon these large language models (LLMs) become good enough, spending for AI training, which has been the biggest driver of Nvidia's GPU sales, could begin to decrease. At the same time, Advanced Micro Devices has been able to carve itself a niche in the inference part of the AI infrastructure market, while several companies have also been turning to customized AI chips with the help of companies like Broadcom. While Nvidia has the dominant position in AI training, it could face more challenges if there is a shift in demand toward inference. If these scenarios play out, then Nvidia would likely see declining sales and earnings and the stock would be a sell. While the sell case for Nvidia is based on future demand, the buy case is largely predicated on this as well. Demand is insatiable for Nvidia's chips, and there is no sign of it easing. As AI models advance and become more sophisticated, they don't just need more computing power and GPUs to train on, they need exponentially more. For example, xAI's Grok 3 LLM needed five times as many GPUs to train on as its predecessor Grok 2, while Alphabet said its Llama 4 LLM would need up to 10 times the computing power as Llama 3. Oracle, meanwhile, earlier said it sees no let up in AI infrastructure spending over the next five to 10 years, while Nvidia's customers have by and large indicated that their capital expenditure budgets related to AI spending were all going up in 2025. Meanwhile, last quarter the company also talked about its opportunities in AI inference, noting it is the largest company in this area and that it has a large built-in customer base. It has also been starting to see traction among enterprise and industrial customers, which it thinks will be the next big AI wave. At the same time, Nvidia still has a wide moat in the GPU space thanks to the widespread use of its CUDA software platform. Nvidia long ago created the free software platform to allow developers to program its GPUs, and since then it has become the standard on which developers have learned. The company has also accelerated its development cycle to introduce upgrades once a year (rather than the prior 2-year to 3-year pace) to help stay at the forefront of GPU technology, which should continue to give it pricing power. In addition to the opportunities still in front of it, Nvidia's stock trades at an attractive valuation despite its strong gains this year. It trades at a forward price-to-earnings (P/E) ratio of about 31 based on 2025 analyst estimates, and a price/earnings-to-growth (PEG) ratio of approximately 1. A PEG ratio under 1 is generally viewed as undervalued, and growth stocks will often command PEG ratios well above 1. Given Nvidia's huge gains over the past few years, it is certainly a reasonable strategy for investors who bought the stock in the past couple of years to book some profits and then let their remaining position ride. At the end of the day, this is just prudent portfolio management. Meanwhile, investors will have time to see how both the buy and sell cases for Nvidia play out in the coming years. For investors who jumped in on Nvidia early, I would trim a bit and continue to hold the rest. However, I don't think it's too late for new investors to get in on the action. Nvidia's customers' actions and commentary continue to point to robust AI infrastructure spending over the next few years, at least, while it remains poised to be the biggest beneficiary of this spending. At the same time, the stock is still attractively priced despite the run-up in its shares.

This Magnificent Stock Has Made Many Millionaires, and Could Make More | The Motley Fool

Buying and holding on to solid companies for a long time is a tried-and-tested strategy for making money in the stock market, as it allows investors to take advantage of the power of compounding and also enables them to capitalize on secular and disruptive growth opportunities. Nvidia (NVDA 0.66%) has been one such magnificent stock that has made savvy and foresighted investors into millionaires. In fact, an investment of just $1,200 made in shares of Nvidia a couple of decades ago is now worth more than $1 million. This remarkable surge in Nvidia stock during the past 20 years is due to multiple growth drivers, such as the growing craze of PC (personal computer) and smartphone gaming, the increasing chip content in cars, the advent of cloud gaming, and the fast-growing demand for high-performance computing in data centers. All these catalysts helped improve sales of Nvidia's graphics processing units (GPUs). And now, artificial intelligence (AI) has turned out to be yet another powerful growth driver for the chip giant. The good part is that AI adoption is currently in its early phases of growth, and there are several ways in which Nvidia is poised to benefit from this technology. At the same time, there are additional catalysts that could help this chipmaker deliver outstanding gains in the long run. Of course, Nvidia's huge market cap of $3.35 trillion means that it may not be able to replicate the red-hot surge that it has clocked during the past two decades, but its growth drivers will make it clear that the company still has enough fuel in the tank to become a part of a million-dollar portfolio. Let's look at why. When Nvidia released its fiscal 2025 third-quarter results (for the three months ended Oct. 27), it delivered record revenue of $35.1 billion. The chipmaker's top line shot up 94% year over year, driven by a 112% increase in its data center revenue to $30.8 billion. So, the data center business produced nearly 87% of Nvidia's overall revenue. It is well known that there is a enormous demand for Nvidia's data center GPUs for training and deploying AI models. The company controlled 98% of this market in 2023, and its performance this year suggests that it continues to be the dominant player in this sector, since its rivals have failed to make much headway. This bodes well for Nvidia, as the size of the AI chip market is forecast to grow from $123 billion this year to $311 billion in 2029. However, Nvidia management sees a much bigger opportunity in the data center business beyond AI. On the company's latest earnings conference call, Chief Executive Officer Jensen Huang pointed out that "$1 trillion worth of computing systems and data centers around the world" are now being upgraded to handle machine learning workloads. These upgraded data centers will be powered by GPUs instead of central processing units (CPUs) to enable the transition from general-purpose computing to accelerated computing, opening a gigantic growth opportunity for Nvidia. The good part is that the transition has already begun thanks to AI. Market research firm Dell'Oro Group estimates that sales of general-purpose servers could increase at an annual rate of just 3% between 2023 and 2028. Accelerated servers, on the other hand, are forecast to clock a much stronger annual growth rate of 31% during the same period. Another big reason the shift to GPU-powered accelerated computing is set to gain momentum is because of energy efficiency. Nvidia points out that the ability of GPUs to perform more work in less time compared to CPUs means that they consume less energy. Data centers reportedly account for 1% to 2% of global electricity consumption, and that rate is expected to double by the end of the decade. So, the adoption of GPUs in data centers is likely to increase thanks to catalysts beyond AI and pave the way for long-term growth at Nvidia. Nvidia is reliant on the data center business for a huge chunk of its revenue now. However, the company is also gaining traction in the enterprise software market, where customers are using its AI-focused solutions to integrate generative AI into their operations. From Accenture to Deloitte to Salesforce to SAP, Nvidia has already found multiple customers for its enterprise AI offerings. These customers are using Nvidia's platform to build copilots and AI agents. As a result, Nvidia now anticipates its AI enterprise revenue will more than double in the current fiscal year, with more growth expected in coming years because of its improving revenue pipeline in this area. Given that the overall enterprise AI market is forecast to clock an annual growth rate of almost 38% through 2030 and generate $155 billion in revenue, it won't be surprising to see Nvidia gaining more share in this market. The mentioned catalysts, Nvidia's AI dominance, and the huge addressable opportunity it is sitting on explain why analysts have raised their revenue expectations from the company for the current and the next two fiscal years. That impressive growth is expected to filter down to the company's bottom line as well. More importantly, Nvidia seems to be in a position to maintain such healthy growth beyond the next three years, considering the $1 trillion opportunity in accelerated computing as well as the lucrative enterprise AI software market, which could pave the way for more upside in this tech stock. That's why investors looking to build a million-dollar portfolio can still consider buying Nvidia as it is trading at 33 times forward earnings right now, which isn't much more than the tech-heavy Nasdaq-100 index at 31 times estimated earnings.

Better Artificial Intelligence Stock: Broadcom vs. Nvidia | The Motley Fool

Among the companies benefiting from artificial intelligence (AI) entering the mainstream are semiconductor giants Broadcom (AVGO -0.06%) and Nvidia (NVDA -3.35%). The arrival of AI supercharged sales for both businesses as customers sought the necessary hardware and software to implement AI into their organizations. As a result, Broadcom stock skyrocketed to a 52-week high of $186.42 in October, a dramatic change from the $90.31 low it was at last December. Nvidia also saw its stock soar over the past year, from last December's 52-week low of $45.01 to a high of $152.89 as of Nov. 21. Both remain in a position to continue benefiting from AI-related demand, which shows no signs of abating. Industry forecasts estimate the AI market will experience a multi-year expansion from around $184 billion this year to over $826 billion by 2030. With Broadcom and Nvidia both doing well, is one a better investment to capitalize on the growing AI market? Here's a comparison of each to help you arrive at an answer. Broadcom's ability to capture AI demand lies in its expansive semiconductor business. It offers an array of products for tech industries such as computer networking, storage, and broadband. So it's understandable that the emergence of AI has powered sales growth for the company. In its fiscal third quarter, ended Aug. 4, Broadcom delivered $13.1 billion in revenue, a 47% year-over-year increase. Its networking hardware, in particular, benefited from AI demand, as sales in this area rose 43% year over year to $4 billion. But softness in non-AI related sales meant the division's overall Q3 revenue growth was just 5% year over year to $7.3 billion. The other major area of Broadcom's business, software to manage IT infrastructure, grew a whopping 200% year over year to $5.8 billion thanks to the company's acquisition of VMware last November. The VMware Cloud Foundation (VCF) platform enables Broadcom's customers to establish a private AI. Private AI protects customer data from use by AI other than those designated by the customers. Broadcom tackling the nascent private AI market is proving to be a masterful strategy. Customer demand for the technology led to VCF comprising over 80% of VMware's Q3 product bookings. Nvidia has been one of the biggest beneficiaries of the fervor over AI because of its focus on accelerated computing. This type of computer architecture processes data-intensive tasks separately from the work handled by a CPU, making it ideal for complex tech such as AI. Nvidia championed accelerated computing with the creation of its graphics processing unit (GPU) in 1999. The company is now recognized as the world leader in GPUs with some estimates placing its market share at 80%. Results for its fiscal third quarter, ended Oct. 27, proved it remains a leader in the accelerated computing space. It achieved record Q3 revenue of $35.1 billion, up 94% from the prior year. The company expects this sales growth to continue into Q4 with revenue estimated to reach around $37.5 billion. That's a 70% increase over the previous year's $22.1 billion. Nvidia is likely to continue seeing sales supercharged by AI demand. According to CEO Jensen Huang, "AI is transforming every industry, company and country." To his point, Denmark and Japan used Nvidia products to build AI supercomputers. With Broadcom and Nvidia both seeing success in their AI-related offerings, it's not easy to decide which wins out as the better AI investment. One consideration is to look at the diluted earnings per share (EPS) for each company. As the chart shows, once AI demand exploded in 2023, Nvidia's EPS rocketed up while Broadcom's declined. Over its last three fiscal quarters, Broadcom's net income dropped to $1.6 billion from $10.6 billion in the previous year as it dealt with higher expenses related to its VMware acquisition. Another factor to weigh is the price-to-earnings ratio (P/E ratio) for each company. This metric tells you how much investors are willing to pay for every dollar of earnings, which helps you to assess the relative value of a stock. Broadcom's P/E ratio has become elevated compared to Nvidia's at the time of this writing. This suggests that Nvidia's stock is the better value right now. Between Broadcom and Nvidia, the latter's lower P/E multiple and higher EPS, combined with its leadership position in accelerated computing, means Nvidia is the superior AI stock to buy and hold for the long term.

Where Will Nvidia Stock Be in 2 Years? | The Motley Fool

The past two years have been absolutely phenomenal for Nvidia (NVDA -1.15%) investors, as shares of the graphics card specialist shot up 736% during this period once it became evident that the company is going to play a central role in the proliferation of artificial intelligence (AI). Nvidia's stellar returns can be justified by the rapid growth in its revenue and earnings during this period, a result of its monopoly-like position in the AI chip market. The good part is that Nvidia seems capable of sustaining its stunning rally over the next three years as well, especially after the comments that management made on the company's recent earnings conference call. Let's look at the reasons why Nvidia investors can expect this high-flying semiconductor stock to deliver more upside. When Nvidia released its fiscal 2025 third-quarter results (for the three months ended Oct. 27) on Nov. 20, it reported record revenue of $35.1 billion. The company's top line increased 94% year over year, driven mainly by the 112% spike in its data center revenue to $30.8 billion. Nvidia was originally anticipating fiscal Q3 revenue to land at $32.5 billion, but it cruised past that estimate thanks to the aggressive production ramp of its next-generation Blackwell processors. The company is witnessing "staggering demand" for its Blackwell AI chips, which is why it is "racing to scale supply." It is not surprising to see why Blackwell's demand is so solid. After all, recent tests indicate that Nvidia's latest generation of AI processors can deliver a 2.2x jump in performance over the previous generation of Hopper chips. What's more, this terrific improvement in performance is accompanied by a drop in computing costs. As pointed out by CFO Colette Kress: The 64 Blackwell GPUs are required to run the GPT-3 benchmark compared to 256 H100s or a 4x reduction in cost. So, Nvidia is doing the right thing by increasing the output of its Blackwell processors, even though it is taking a short-term margin hit in the process. The company expects its non-GAAP (adjusted) gross margin to land at 73.5% in the current quarter, which will be a drop from the year-ago period's reading of 76.7%. However, Kress points out that Nvidia's gross margin will grow back into the mid-70s range once the production of the Blackwell processors fully ramps up. Japanese investment bank Mizuho recently raised Nvidia's GPU sales estimate for 2025 by 10% to 30 million units, citing the rising demand for these chips in gaming, data centers, and AI. This explains why consensus estimates are now projecting strong growth from Nvidia in fiscal years 2025 and 2026. NVDA Revenue Estimates for Current Fiscal Year data by YCharts One key reason why Nvidia has been able to maintain a terrific grip over the GPU market is because of the technological advantage that it enjoys over rivals. The likes of AMD have been playing catch up, and Nvidia has left competitors in the dust by capturing the lion's share of the AI chip space. The good part is that Nvidia has an aggressive product roadmap that could help it sustain its dominance in this lucrative space. For instance, Nvidia's Blackwell processors will be succeeded by chips based on the Rubin architecture in the first half of 2026. Analysts estimate that Nvidia will manufacture the Rubin chips using a 3-nanometer (nm) process node from Taiwan Semiconductor Manufacturing. That would be an improvement over the Blackwell's 4NP process node, which is an enhanced version of TSMC's 5nm process. A smaller process node means that Nvidia will be able to pack more transistors into a compact area, which ideally leads to an improvement in computing power and a reduction in power consumption. So, it won't be surprising to see Rubin helping Nvidia maintain its technological advantage over rivals in the AI chip market and help it sustain its terrific pricing power in this space. With the market for AI chips expected to generate a whopping $500 billion in revenue in 2028, according to AMD, Nvidia's dominance of this market is likely to lead to robust top and bottom-line growth. That explains why analysts have raised their growth expectations from the company for the current and next fiscal year, as seen earlier. A similar trend can be seen for fiscal 2027 (which will coincide with the majority of its calendar year 2026). NVDA EPS Estimates for Current Fiscal Year data by YCharts The chart above shows that analysts are expecting Nvidia to deliver $5.55 per share in earnings in fiscal 2027. Assuming that the company trades at 40.8 times earnings at that time (in line with its five-year average forward earnings multiple), its stock price could hit $226 in a couple of years. That would be a 67% jump from current levels. Given that Nvidia is now trading at 36 times forward earnings, investors can buy this AI stock at an attractive valuation right now, and they may not want to miss this opportunity as the company could deliver stronger gains if the market decides to reward its handsome growth with a richer multiple.

CEO Jensen Huang Just Delivered Fantastic News for Nvidia Investors | The Motley Fool

Nvidia (NVDA -1.15%) recently reported another blowout quarter. After guiding investors to expect revenue in its fiscal 2025 third quarter to be around $32.5 billion, the leading artificial intelligence (AI) company reported record quarterly sales of $35.1 billion for the period ended Oct. 27. Exceeding expectations has become the norm, though, as AI capital spending continues to grow. Analysts had already baked in another big quarter, and Nvidia stock reflects much future success. Nvidia shares have dropped by about 7% since the fiscal third-quarter report even after some very bullish comments from Nvidia CEO Jensen Huang during the earnings conference call. But it was comments he made the week before Nvidia's earnings report that should have investors most excited to own the stock. Huang was in Japan for an AI summit on Nov. 12, and he laid out a future vision that provides investors a clear picture of why it's not too late to buy Nvidia stock. While answering questions during the earnings call on Nov. 20, Huang addressed reports on manufacturing and quality-related issues for its latest Blackwell AI architecture. Blackwell's success is critical for Nvidia heading into next year. Huang delivered some great news on that front: Blackwell production is in full steam. In fact ... we will deliver this quarter more Blackwells than we had previously estimated. It is the case that demand exceeds our supply. When Huang was at an AI summit in Japan with SoftBank CEO Masayoshi Son the week prior, though, he laid out just how pervasive he expects Blackwell and Nvidia's other AI-related platforms to be. Huang and Son have a history together. In fact, Huang half-joked during the fireside chat that Son "wanted to lend me money to buy Nvidia -- all of it." "Now I regret not taking you up," he said to Son, adding, "That was a great idea." Son said that offer was made in 2016 shortly after SoftBank acquired semiconductor chip designer Arm Holdings for $32 billion. SoftBank still owns 90% of Arm after taking it public again in 2023. The Nvidia CEO made an even more important revelation at the summit. He proclaimed: "Today we're announcing that we're partnering with SoftBank to bring and to build an AI infrastructure for Japan. Together we're going to build Japan's largest AI factory ... out of Nvidia DGX." Nvidia DGX is the company's AI enterprise platform. The company describes it as its "software, infrastructure, and expertise in a modern, unified AI development solution." It essentially is the enterprise platform where the AI rubber meets the road. SoftBank will integrate the Nvidia technology to add intelligence to its telecommunications network beyond just voice, data, and video. It will be distributed across the 200,000 SoftBank sites in Japan. It plans to add an "AI store" to make AI available to 55 million SoftBank customers. All built on top of Nvidia's AI enterprise. The result will be an "AI grid" that will run across Japan. Huang called it "completely revolutionary." "This is the first of its kind to transform the telecommunications network, the communications network, into an AI network," he said. This is an example of how Nvidia's business can maintain its growth momentum. The applications are endless. From customer service to helping to manage and control a network of self-driving cars. Huang presented an example where entire factories could become an AI system using cameras and large language models. Managers can "talk" to the factory about what's happening, whether anything at the site is abnormal, if there were any accidents, or just to get daily reports. The concept could also expand to other physical objects such as a road, a stadium, an office, or a building. Investors wondering if Nvidia stock has already marched too high should consider the potential gains that could come from enterprise AI. This next phase is already underway. Nvidia CFO Colette Kress told investors during the quarterly call that the company shipped its first Blackwell DGX engineering samples to artificial intelligence development company OpenAI. The optimism from Huang regarding his company's future is understandable. These AI collaboration projects are only going to grow. Any investors with a portfolio that includes a growth segment should want to have Nvidia as part of that.

Prediction: Nvidia Stock Will Soar in 2025. Here's Why. | The Motley Fool

The chipmaker has already been a huge winner, but investors may be overlooking a crucial detail that's hiding in plain sight. The past couple of years have been a nonstop thrill ride for Nvidia (NVDA -1.15%) investors. The company had a market cap of just $359 billion to kick off 2023. Now, its value has soared to more than $3.35 trillion (as of this writing) -- a more than ninefold increase in less than two years. Driving the parabolic move are the company's graphics processing units (GPUs), which quickly became the gold standard for powering artificial intelligence (AI). This has fueled revenue that jumped 480% and net income that surged 1,270% since the start of 2023. Investors shouldn't expect growth of that magnitude to continue, but there's plenty of evidence that Nvidia still has plenty of gas in the tank. Many of the world's biggest tech companies continue to invest heavily to upgrade their infrastructure to handle the rigors of AI -- and for most of them, that means stocking up on Nvidia's state-of-the-art processors. The obvious secular tailwinds aside, there's a crucial detail investors may be overlooking that could signal a big move for Nvidia in 2025. Read on to find out why. For Nvidia's fiscal 2025 third quarter (ended Oct. 27), revenue of $35.1 billion soared 94% year over year, while its adjusted earnings per share (EPS) of $0.81 surged 103%. The results were well ahead of management's forecast, which called for revenue growth of 79%. Management was clear about what fueled the impressive showing. "The age of AI is in full steam, propelling a global shift to Nvidia computing," said CEO Jensen Huang. Digging into the results, the top-line move was driven by continued strong demand within Nvidia's data center segment, which grew 112% year over year to $30.8 billion. Much of that revenue was derived from the company's Hopper architecture, the foundation for its H200 Tensor Core GPU, and its GH200 Grace Hopper Superchip -- which are currently powering many of the world's data centers and AI infrastructure. Although these processors are currently the benchmark, they're about to be supplanted by Nvidia's Blackwell architecture, which represents the next generation of its AI-centric chips. The company has been working to ramp up production of the Blackwell processors and has previously said it expects to ship "several billion dollars" of these chips in its fiscal 2025 fourth quarter, which ends in late January. Nvidia has made no bones about the robust demand, with big tech companies jockeying to be among the first to receive these next-generation AI-centric chips. In an interview with CNBC, Huang said the demand for Blackwell was "insane." He went on to say, "Everybody wants to have the most, and everybody wants to be first." With everyone wanting to get their hands on these chips, supply is currently outstripping demand, and that situation isn't expected to be resolved for several quarters. During the earnings call, chief financial officer Colette Kress said, "Blackwell demand is staggering, and we are racing to scale supply to meet the incredible demand." In her written commentary, she added (emphasis mine), "Both Hopper and Blackwell systems have certain supply constraints, and the demand for Blackwell is expected to exceed supply for several quarters in fiscal 2026." For context, Nvidia's fiscal 2026 kicks off in late January. The resulting pent-up demand could act as a springboard for Nvidia sales heading into next year. I'm not the only one who thinks so. Beth Kindig, CEO and lead tech analyst for the I/O Fund, believes that in 2025, sales of Blackwell processors will outpace sales of Nvidia's GPUs for 2023 and 2024 -- combined. Kindig says the company's unbridled pricing power could power a minimum of 50% growth in its data center segment next year. That could lead to as much as 70% upside for the stock in 2025. This race is on to increase the availability of its flagship processor, as Nvidia works with its suppliers to ramp up production. As the supply of these next-gen processors increases, so too will the company's revenue, since greater production means more chips available to sell. This will, in turn, supercharge already robust profits, fueling a surge in its stock price. To be clear, we don't know exactly when the supply constraints will ease, but Nvidia has a vested interest in working through the bottleneck as quickly as possible. Management has historically been conservative with its estimates, so we can probably expect a gradual increase in the supply of these top-end chips, which will be the catalyst for ramping up Blackwell sales as the year progresses. Some investors have resigned themselves to the fact that Nvidia's growth has already peaked. I believe that view is premature and represents an opportunity for astute investors with a longer-term view. Its premium valuation has already begun to ease. Wall Street is predicting the company will generate EPS of $4.41 in fiscal 2026, which works out to just 31 times next year's sales (as of this writing). At some point in 2025, the evidence suggests, the supply of Nvidia's best-of-breed Blackwell AI chips will accelerate, which will cause a corresponding increase in sales. I predict that this will be the catalyst that will ignite the stock price, causing it to soar in 2025.

Should You Forget Super Micro Computer and Buy These 2 Millionaire-Maker AI Stocks Instead? | The Motley Fool

Super Micro Computer's stock soared more than 30% on Nov. 19 after it appointed a new independent auditor and submitted a compliance plan to Nasdaq to avoid a potential delisting. Those announcements addressed its two pressing issues: the departure of its auditor Ernst & Young in October, and a delayed filing for its 10-K report, which could cause its stock to be delisted. But even after that rally, Supermicro's stock remains 76% below its all-time high from this March. The server maker's shares are still being weighed down by concerns about its sliding gross margins, competition from bigger server makers like Dell Technologies and Hewlett Packard Enterprise, and troubling allegations of inflated revenues from a prolific short seller. Its delayed annual report and loss of Ernst & Young seemed to support that bearish thesis, and the Department of Justice (DOJ) is reportedly getting ready to probe Supermicro's business. Supermicro's stock looks dirt cheap at 8 times forward earnings, but it will likely trade at that discount until it fully resolves its accounting and regulatory issues. So instead of betting on Supermicro's long-shot turnaround, investors would probably be better off sticking with these two millionaire-maker blue chip AI stocks instead: Microsoft (MSFT 1.00%) and Broadcom (AVGO 0.18%). Microsoft generated a total return of more than 900% over the past decade. That rally, which was mainly driven by the explosive growth of its cloud business, would have turned a $100,000 investment into more than $1 million. Microsoft turned into a growth stock again after Satya Nadella, who became its CEO in 2014, drove the company to transform its desktop-based software into cloud-based services and mobile apps. It also turned Azure into the world's second-largest cloud infrastructure platform and expanded its hardware and gaming businesses. Over the past five years, Microsoft ramped up its investments in OpenAI, the creator of ChatGPT, and integrated the start-up's generative AI tools into its own search and cloud services. Thanks to that foresight, it tethered more businesses and consumers to its cloud ecosystem, and it gained a first-mover's advantage against Alphabet's Google and other tech giants in the nascent generative AI market. In fiscal 2024 (which ended this June), Microsoft's AI-driven transformation boosted its total cloud revenues by 23% to $135 billion -- which represented 55% of its top line. From fiscal 2024 to fiscal 2027, analysts expect its revenue and earnings per share (EPS) to grow at a compound annual growth rate (CAGR) of 14% and 15%, respectively. Its stock still looks reasonably valued at 28 times next year's earnings, and it will likely remain a top play on the AI market for years to come. Broadcom, which was known as Avago before it took over the original Broadcom in 2016, has generated a total return of 2,300% over the past 10 years. That rally would have turned a $50,000 investment into $1.2 million. Broadcom's semiconductor business sells a broad range of chips for the mobile, wireless, networking, data storage, and industrial markets. But over the past few years, it built a massive infrastructure software business by acquiring CA Technologies, Symantec's enterprise security division, and the cloud software giant VMware. Broadcom's chipmaking and software businesses are both growing. But over the past two years, its sales of networking and optical chips for the AI-oriented data center market skyrocketed as more companies upgraded their infrastructure. For fiscal 2024 (which ended in October), it expects its sales of AI-oriented chips to roughly triple to $12 billion, or nearly a quarter of its projected sales for the full year. That rapid growth should offset its slower sales of non-AI chips and infrastructure software, which are both more sensitive to macro headwinds. From fiscal 2024 to fiscal 2026, analysts expect Broadcom's revenue to grow at a CAGR of 15% as its EPS increases at a CAGR of 124%. That earnings growth should be driven by brisk sales of AI chips and the expansion of its higher-margin software business. Its stock might seem a bit pricey at 42 times forward earnings, but its track record of smart acquisitions, high exposure to the AI market, and robust growth could justify that higher valuation.

2 No-Brainer Semiconductor Stocks to Buy Right Now | The Motley Fool

Here's why Nvidia and Taiwan Semiconductor look poised to continue their strong runs. With 2024 starting to wind down, it appears it is going to be a very good year for the stock market, with the S&P 500 up about 24% year to date as of this writing. Tech stocks, in particular, have had a good run, with many benefiting from the advent of artificial intelligence (AI). Two standouts this year in the semiconductor space have been Nvidia (NVDA -4.18%) and Taiwan Semiconductor Manufacturing (TSM -2.63%), or TSMC for short. But despite the strong performances of these two stocks, it looks like they have a lot of upside still ahead. Let's look at why Nvidia and TSMC look like no-brainer buys, even after their recent run-ups. Nvidia has unquestionably been the biggest winner of the AI infrastructure build out, as its graphic processing units (GPUs) have become the backbone of the computing power needed to train large language models (LLMs). As cloud computing companies, AI start-ups, and other tech leaders have rushed to advance their AI models, there has been an insatiable appetite for Nvidia's AI chips. This has led to astonishing revenue growth for the company this year, with revenue up a whopping 135% year over year through the first nine months of its fiscal year. Its earnings per share (EPS), meanwhile, have nearly tripled over this same period. And while its growth this past year has been outstanding, there is reason to believe Nvidia will continue to grow strongly into the future. Customer demand remains strong, and as their AI models advance, they will need exponentially more computing power, which comes from Nvidia's GPUs. For example, Meta Platforms has said its Llama 4 LLM would need 10 times the compute power as its Llama 3 LLM, while xAI's Grok-3 AI model was trained using 100,000 GPUs versus Grok-2, which used 20,000 GPUs. Meanwhile, Nvidia's largest customers have generally indicated that their capital expenditure (capex) spending will rise next year as they chase the once-in-a-lifetime opportunity of AI. In addition to the AI training opportunities the company is seeing, Nvidia is also seeing a big pickup in its GPUs being used for AI inference, while it is also seeing increasing enterprise and industrial usage as well, marking another avenue of growth for the company. And while Nvidia is not the only company that makes GPUs, its CUDA software platform long ago became the standard upon which developers learned to program GPUs, creating a wide moat for the company. This is a large part of the reason why the company has such a dominant position in the market today. Meanwhile, despite the stock's huge gains over the past few years, the stock remains attractively valued, with a forward price-to-earnings (P/E) of 33 times next year's analyst estimates and a price/earnings-to-growth (PEG) ratio of just over 1. A PEG ratio of under 1 is usually viewed as undervalued, but growth stocks will often have multiples well above 1. Between the growth opportunities still in front of it, its wide moat, and attractive valuation, Nvidia stock is a great option for investors moving forward. Another chip stock riding the AI wave is TSMC, the world's largest semiconductor contract manufacturing company. TSMC makes the chips that semiconductor companies design, and it counts Apple and Nvidia among its largest customers. And while TSMC is not the world's only semiconductor contract manufacturer, like Nvidia, it too has been able to create a wide moat. It has done this through its advanced technology and scale advantages. This has led the company to thrive, which can be seen in the 36% increase in revenue the company saw in Q3 and 50% jump in earnings per ADR (this is similar to EPS). This can be contrasted with Intel's third-party foundry business, which has been drowning in losses and saw revenue decline last quarter. The company is benefiting from the huge demand coming from AI chips, and is also set to benefit from any increased chip demand coming from a hardware and smartphone upgrade cycle, as more powerful devices are needed to run AI. TSMC has also seen strong pricing power, which has been pushing up its gross margins. Meanwhile, according to Morgan Stanley, the company has already told customers that it will raise prices in 2025, including by 10% for AI semiconductors. Also, similar to Nvidia, TSMC is attractively valued despite the run-up in its stock price. It trades at a forward P/E of about 21.5x based on next year's analyst estimates, with a PEG of about 1.1. Given the huge demand for semiconductors, combined with TSMC's improving gross margins and pricing power, not to mention its attractive valuation, this is a strong option for investors to consider at current levels.

Nvidia CEO Jensen Huang Says This Is the "Next Wave of AI" -- and He Singled Out 1 Potential Big Winner Other Than Nvidia | The Motley Fool

If you want to learn where artificial intelligence (AI) could be heading, you'll probably want to pay attention to Nvidia (NVDA 0.66%) CEO Jensen Huang. After all, Huang's company is arguably the most important player in the AI world right now. Nvidia's graphics processing units (GPUs) remain the gold standard for powering large-scale AI models. So what does Huang think about the future of AI? He recently discussed the "next wave of AI" -- and singled out one potential big winner other than Nvidia. In Nvidia's third-quarter earnings conference call on Nov. 20, Huang stated, "The next wave of AI are [sic] enterprise AI and industrial AI." He added, "Enterprise AI is in full throttle." What exactly are these next big things for AI that Huang mentioned? Enterprise AI is the use of AI technologies to help organizations increase productivity, improve customer service, reduce costs, gain competitive advantages, and spur innovation. Alphabet's Google Cloud unit argues, "Enterprise AI goes beyond simple automation. It involves using AI to solve complex business problems that require human-like intelligence, such as understanding customer behavior, optimizing logistics, or detecting fraud." Industrial AI is similar to Enterprise AI but is specific to manufacturing. It involves using AI technologies in industrial applications such as robotics and supply chain management. As you might expect since Huang referenced enterprise AI and industrial AI, Nvidia markets products for both areas. The company's AI Enterprise is a cloud platform that supports the development and deployment of AI agents and generative AI applications. Nvidia Omniverse helps customers build, train, and deploy industrial AI models and robotics. Huang highlighted several customers who are using Nvidia AI Enterprise to develop AI-powered agents and copilots. He also stated, "Consulting leaders like Accenture (ACN 0.52%) and Deloitte are taking Nvidia AI to the world's enterprises." The Nvidia CEO then expounded on Accenture's initiatives in enterprise AI. He noted that Accenture has launched a new business unit with roughly 30,000 professionals trained in Nvidia's AI technology. This group will help roll out Nvidia AI Enterprise across the world. Accenture is also using enterprise AI internally. Huang mentioned the consulting company's efforts to use AI agents in marketing campaigns. He said Accenture is reducing manual steps in these campaigns by 25% to 35%. Generative AI accounted for $3 billion of Accenture's new bookings in fiscal year 2024, which ended Aug. 31, 2024. Accenture CEO Julie Sweet said in the company's fiscal Q4 update that management believes generative AI "is the most transformative technology of the next decade." Accenture is also a leader in enabling companies to implement industrial AI. The consulting giant is launching a virtual facility robot fleet simulation blueprint that integrates Nvidia's Omniverse, Isaac robot development platform, and Metropolis Internet of Things platform to help manufacturers "build autonomous, robot-operated software-defined factories and facilities." At first glance, Accenture's valuation might seem problematic. The stock trades at 28 times forward earnings. Its price-to-earnings-to-growth (PEG) ratio, which is based on five-year growth projections, is a relatively high 2.24. However, Accenture's opportunities in AI could be larger than these valuation metrics imply. Don't underestimate the help organizations will likely require in implementing enterprise AI and industrial AI. Accenture's strong partnership with Nvidia could give it a significant competitive advantage over the next few years. I think Huang is correct about the importance of enterprise AI (especially the use of AI agents) and industrial AI. I also believe he's right about Accenture's role in helping bring these technologies to organizations across the world. Accenture could be an ideal picks-and-shovels stock to buy for investors seeking to profit from what Huang views as the next wave of AI.

Better Artificial Intelligence Stock: Broadcom vs. AMD | The Motley Fool

It's a good time to invest in the fast-growing artificial intelligence (AI) industry. The market for AI is expected to surpass $184 billion this year, and forecast to reach more than $826 billion by 2030. Among AI tech stocks, semiconductor firms Broadcom (AVGO 0.18%) and Advanced Micro Devices (AMD 0.63%) are two to consider investing in. The AI industry's growth has led to outsized sales for both as customers flocked to their offerings. But if you had to choose between them, is one a better AI stock than the other? Let's compare Broadcom and AMD to help you decide which is the better AI investment for the long run. Broadcom is basking in the AI fervor, as sales expanded 47% year over year to $13.1 billion in its fiscal third quarter, ended Aug. 4. That's an impressive increase, but 43% of the growth came from its acquisition of VMware, which closed last November. VMware is famous for its virtualization software, which allows IT organizations to run multiple operating systems on a single server. But its private AI technology looks like a key strategic factor behind Broadcom's acquisition. Private AI shields a firm's data from access by any AI system except those designated by the business. This is important because AI tech requires mountains of data, which is taken from various sources, including from businesses that have stored data in the cloud. Broadcom believes some companies don't want their data shared with other businesses through AI, whether to protect intellectual property or to comply with legal requirements. Broadcom's private AI offering is built on the VMware Cloud Foundation (VCF) platform. VCF represented more than 80% of the VMware products booked in Q3. This illustrates strong customer demand for VCF and its ability to establish a private AI for businesses. Broadcom also generates AI-related sales from an array of semiconductor products, including those for the computer networking, storage, and broadband industries. Its semiconductor solutions division contributed $7.3 billion of its $13.1 billion in Q3 revenue, a 5% year-over-year increase. AMD's strategy to capture AI market share is for its semiconductor products to concentrate on accelerated computing. This computing architecture processes data-intensive work separately from other computer tasks handled by a traditional CPU. Doing so allows complex software applications, such as AI, to operate faster and more efficiently. AMD's focus on accelerated computing has been the key to its success in the AI era. Big tech customers, such as Facebook parent Meta Platforms, are flocking to its products. For example, Meta purchased 1.5 million units of AMD's EPYC computer processor for its cloud computing servers, which house AI systems. This customer demand resulted in 18% year-over-year revenue growth to $6.8 billion in AMD's fiscal third quarter, ended Sept. 28. Moreover, the company expects sales to accelerate in Q4, reaching about $7.5 billion, a 22% year-over-year increase. AMD's sales success has led to strong financials across the board. Its Q3 gross margin rose to 50% from 47% last year. This helped Q3 net income hit $771 million, a 158% jump up from the prior year. This, in turn, enabled diluted earnings per share (EPS) to increase to $0.47, a 161% year-over-year increase. Both Broadcom and AMD possess AI strategies with the ability to capitalize on the growing AI market over the long term. This makes choosing only one of these AI stocks a challenge. So which wins? One factor in Broadcom's favor is that it offers a dividend, while AMD does not. Broadcom's forward dividend yield is a solid 1.3% at the time of this writing. However, excessive debt can put the dividend at risk. At the end of its fiscal Q3, Broadcom shouldered nearly $70 billion in debt. This resulted in more than $1 billion in Q3 interest payments, contributing to its net loss of $1.9 billion in the quarter. Meanwhile, AMD's debt at the end of its fiscal Q3 was a manageable $1.7 billion. With its Q3 cash and equivalents of $3.9 billion, AMD's net debt was effectively zero. Another consideration is the price-to-earnings ratio (P/E ratio) for each company. This metric is a way to assess the relative value of a stock by telling you how much investors are willing to pay for every dollar of earnings. AMD's P/E multiple was far higher than Broadcom's earlier in 2024, but has come down recently. It's below Broadcom's at the time of this writing, suggesting AMD shares are now the better value. Given these factors, as well as its success in the area of accelerated computing, right now AMD is the better AI stock to invest in the secular trend of artificial intelligence.