Unveiling My Preferred Artificial Intelligence (AI) Shares for Immediate Purchase (It's Worth Noting That Nvidia Misses the Cut)

Unveiling My Preferred Artificial Intelligence (AI) Shares for Immediate Purchase (It's Worth Noting That Nvidia Misses the Cut)

It's almost impossible to discuss or hear anything related to artificial intelligence (AI) without mentioning Nvidia. The company's graphics processing unit (GPU) chipsets are arguably the most significant component in the development of generative AI.

You don't need to take my word for it. Industry research shows that Nvidia held a staggering 98% of GPU shipments over the past two years, according to some reports. Meanwhile, Jon Peddie Research estimates that Nvidia controls an impressive 88% of the GPU market. With statistics like these, it's hard not to consider Nvidia the best AI investment opportunity out there.

However, the stock price of Nvidia has risen more than 800% over the last two years. This leads me to question whether the growth will continue at this rate. To explore other promising AI investments, I'm going to take a look at two companies in the space that I believe have the potential to challenge Nvidia's dominance. Let's delve into the details!

1. Advanced Micro Devices

The first company on my list of top AI stocks is Advanced Micro Devices (AMD -2.44%). While AMD has often been compared to Nvidia in recent years, I don't always find these comparisons to be entirely fair.

Nvidia's primary growth driver over the past few years has been its H100 and H200 GPUs. Nvidia's two-pronged GPU architecture gave the company a significant edge in the market. Its powerful compute and networking products, combined with a lack of competition, helped Nvidia capture virtually the entire market.

However, AMD has been working tirelessly to build its GPU empire over the past few years. Its response to Nvidia's H100 and H200 GPUs is its MI300 chip accelerator. When the MI300 was introduced, AMD predicted revenue of around $2 billion. But during its third-quarter earnings call, AMD CEO Lisa Su hinted that the MI300 is scaling quickly, placing its data center GPU business on track for $5 billion in sales this year.

The best part is that many of AMD's major customers using the MI300 architecture are also customers of Nvidia. With more than $1 trillion in AI infrastructure spending forecasted for the coming years, AMD appears well-prepared to grab incremental market share as it scales its data center GPU operations.

Despite the positive outlook for AMD, the stock price is not garnering much enthusiasm. Currently, AMD shares trade at a forward price-to-earnings (P/E) ratio of 27.1, which is significantly lower than Nvidia's forward P/E ratio of 36.1.

Investors might be overlooking the bigger picture when it comes to investing in AMD. While AMD may never surpass Nvidia, I do believe it has the potential to gain ground as it introduces next-generation GPU products and becomes a more serious competitor to Nvidia over time.

I think AMD's valuation in relation to Nvidia suggests that investors are underestimating the company's future growth prospects. To me, AMD stock looks reasonable at these levels, and I believe it is an attractive buy for investors with a long-term time horizon.

2. Amazon

Next, we have Amazon (AMZN -0.55%), one of Nvidia's peers in the "Magnificent Seven." Amazon is best known for its e-commerce marketplace, but the company's dominance in cloud computing should not be overlooked. Amazon Web Services (AWS) is expected to generate more than $100 billion in revenue this year, and its operating profits are growing even faster.

This trend is particularly noteworthy. Amazon's vast accumulation of free cash flow and strong balance sheet (with $88 billion in cash and equivalents) is enabling the company to make significant capital expenditure investments, such as building data center infrastructure and developing its own in-house training and inferencing chips.

That's right, Amazon is creating its own chips. Surprisingly, this development is often overlooked in the Nvidia narrative. As more advanced GPU architecture enters the market, it's reasonable to speculate that Nvidia's stranglehold on premium pricing power could weaken, leading to slower revenue and profit growth.

AI represents an excellent opportunity for Amazon to further optimize various business segments. However, the company's stock price suggests that this opportunity is not yet fully integrated into its outlook.

In my opinion, AI will help Amazon become an even more streamlined and profitable business in the long term. But at the current time, Amazon is trading at historically low levels on a price-to-free cash flow basis. I believe Amazon is an overlooked AI opportunity and is currently valued too affordably.

In the context of exploring alternative AI investment opportunities, Advanced Micro Devices (AMD) with its MI300 chip accelerator is positioning itself to capture incremental market share, with more than $1 trillion in AI infrastructure spending forecasted for the coming years. Despite the positive outlook, AMD shares trade at a lower forward price-to-earnings (P/E) ratio than Nvidia, indicating potential undervaluation for long-term investors.

Moving on, Amazon (AMZN) is another noteworthy player in AI investments. Known for its e-commerce marketplace, Amazon Web Services (AWS) generates over $100 billion in revenue annually and has a strong balance sheet, enabling significant investments in data center infrastructure and developing in-house AI chips. AI has the potential to further optimize Amazon's business, but its stock price suggests that this opportunity may be overlooked, offering an attractive valuation for investors with a long-term perspective.

In both cases, investing in these companies requires thoughtful consideration of their financial health, market position, and growth potential within the rapidly evolving AI landscape.

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