These companies’ stocks offer more value than Nvidia and have massive potential in AI.
The artificial intelligence (AI) market charmed Wall Street in 2023, with excitement over the generative technology fueling a 50% boost in the Nasdaq-100 technology sector over the last 12 months.
Over a year has passed since OpenAI launched ChatGPT, the general start of the boom in AI, and the industry has shown no signs of slowing. In fact, according to data from Grand View Research, the AI market is projected to expand at a compound annual growth rate of 37% through 2030, which should see it hit close to $2 trillion in spending.
Chipmaker Nvidia (NVDA 2.32%) has taken much of the spotlight in AI, as its graphics processing units (GPUs) have become the go-to for developers worldwide. Its shares are up 220% since last May, achieving the world’s third-highest market cap (after Microsoft and Apple).
However, it could be worth investing in companies at earlier stages in their AI ventures, as they could provide bigger gains in the coming years. So, forget Nvidia and consider buying these two artificial intelligence stocks instead.
1. Advanced Micro Devices
Advanced Micro Devices‘ (AMD 1.92%) stock has climbed 72% in the last year, benefiting from sympathy growth connected to Nvidia’s success in AI and its own expanding position in the market.
Despite constant comparisons between the two companies, AMD and Nvidia are at vastly different stages in their development. The difference is most prevalent in Nvidia’s market capitalization of $2.3 trillion compared to AMD’s $250 billion. Yet, AMD holds the second-largest market share in GPUs, suggesting it has significant potential in AI.
Meanwhile, its lower market value could mean it has more room for growth over the next decade.
AMD posted its first quarter of 2024 earnings on April 30. Revenue rose 2% year over year, beating analysts’ forecasts by $20 million. Earnings per share came to $0.62 against expectations of $0.61. The chipmaker outperformed market projections. Yet, that wasn’t enough to rally investors, with its shares dipping 3% since publishing the report.
However, AMD’s stock remains an attractive way to invest in AI. During the first quarter of 2024, the company’s AI-focused data center segment reported revenue growth of 80% year over year, thanks to increased sales of its MI300X AI GPUs.
CEO Lisa Su revealed that the company had sold over $1 billion in chips since launching its MI300X GPUs, with clients including Microsoft, Meta Platforms, and Oracle.
Data by YCharts
Moreover, this chart shows AMD’s stock could be a better bargain than Nvidia’s, with a significantly lower price-to-sales (P/S) ratio. This is a useful valuation metric that divides a company’s market cap by its trailing-12-month revenue. In this case, AMD’s lower P/S indicates its stock is a far better value than Nvidia’s.
In addition to exciting prospects in AI, AMD is a no-brainer right now.
2. Alphabet
Shares in Alphabet (GOOG -0.83%) (GOOGL -1.11%) have popped 7% since posting its Q1 2024 earnings on April 25. The company has rallied investors by beating expectations on multiple fronts and proof that its hefty investment in AI is beginning to pay off.
Chipmakers like Nvidia and AMD are attractive ways to invest in AI as these companies develop the hardware that makes AI possible. However, it’s also worth investing in the firms creating the software that will allow billions of users to integrate AI into their daily lives and workflows. And Alphabet is an exciting option.
The company’s revenue jumped 15% year over year in Q1 2024, beating Wall Street estimates by nearly $2 billion. AI appears to be boosting multiple areas of Alphabet’s business. The company is using AI to improve its advertising business with AI-powered ads, with its Google Services segment posting revenue gains of 14% year over year.
However, Alphabet’s most lucrative foray into AI appears to be its cloud computing platform, Google Cloud. The segment reported sales growth of 28% year over year while operating income soared 371% to $900 million.
Thanks to services like YouTube, Android, and the many platforms under Google, Alphabet has a vast user base. Consequently, the company has massive potential in AI, with a range of applications for generative technology. Alphabet will likely profit from the tailwinds of AI for years.
Data by YCharts
Like AMD, Alphabet shares are a significantly better value than Nvidia’s. The company’s P/S multiple is 80% lower than Nvidia’s, indicating that its stock offers considerably more value.
Alphabet’s potent business and free cash flow of $69 billion suggest vast potential in AI, with the brand power and financial resources to flourish in the market over the long term.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Apple, Meta Platforms, Microsoft, Nvidia, and Oracle. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.