Nvidia has been the leader of the AI boom thus far, but it could be time to pass the torch.
There’s no question that Nvidia (NASDAQ: NVDA) has been the poster child of the artificial intelligence (AI) revolution thus far.
Nvidia’s graphics processing units (GPUs) and Superchips are so in demand for cloud infrastructure companies and start-ups like OpenAI that there have been widespread shortages and a spike in prices for Nvidia components like the H100. Nvidia’s products have formed the backbone of the computing infrastructure that makes apps like ChatGPT work.
But Nvidia won’t have this space to itself forever. Competition is coming from the likes of Advanced Micro Devices and Intel, as well as the big tech companies that make up a significant chunk of its customer base like Apple, Alphabet, and Meta Platforms, which are working on their AI hardware to reduce their dependency on Nvidia.
Nvidia isn’t a bad buy right now, but there is some downside risk in the stock since it’s jumped nearly 500% since the start of 2023. That was evident when the stock fell 10% on April 19 on little more than fears of a bubble bursting in AI stocks.
For investors who want an AI stock that isn’t at risk of a bubble popping, keep reading to see two that are well positioned for long-term growth.
Image source: Getty Images.
1. Microsoft
Microsoft (MSFT -1.00%) has been in the AI limelight ever since OpenAI launched ChatGPT. That makes sense. After all, Microsoft is a close partner of OpenAI, having invested an estimated $13 billion in the start-up, and Microsoft’s AI strategy hinges on OpenAI’s products and collaborations to a large extent.
Unlike a hardware company like Nvidia, Microsoft has a wide range of ways to capitalize on the AI boom. It’s integrated generative AI technologies into products like its Azure cloud infrastructure service, GitHub code repository tools, Microsoft Office suite, Bing search engine, and others. The company has rolled out Copilot, which it calls its AI-powered productivity tool, across a range of products, and CEO Satya Nadella said in the company’s recent earnings report, “Microsoft Copilot and Copilot stack are orchestrating a new era of AI transformation, driving better business outcomes across every role and industry.”
Microsoft may not have the explosive growth that Nvidia has delivered, but it’s hard to doubt Microsoft’s AI bona fides given its close relationship with OpenAI, dominance of enterprise software, and diversification across businesses like Windows, gaming, and cloud computing.
Investors cheered the tech giant’s latest earnings report, sending the stock up after hours on Thursday after it easily beat estimates on the top and bottom lines.
Even if Nvidia’s growth suddenly slows, Microsoft should be an AI winner regardless of what happens in the chip sector.
2. ServiceNow
ServiceNow (NOW -0.33%) doesn’t get much attention in the AI sector. The company is best known for providing a comprehensive enterprise software suite to handle IT services and operations, as well as areas like customer service and human resources. But it’s one of the biggest cloud software companies, and it’s increasingly carving out a position for itself in artificial intelligence.
ServiceNow has been using more traditional AI technologies like machine learning and predictive intelligence, but it’s also begun incorporating generative AI, using it for its Now Assist tool, which helps users generate code to speed up app creation and updates, and a Generative AI controller that can be used for things like content generation and sentiment analysis.
Generative AI is emerging as a key growth driver for the company, and CEO Bill McDermott said, “Gen AI adoption remained on a tear in Q1.”
Like Microsoft, ServiceNow is also positioned to grow in a wide range of ways from AI, and the company has historically been a model of consistency — it’s grown revenue by 20% or more in every quarter since its 2012 IPO as its profitability has steadily improved.
With the exception of a few temporary pullbacks, ServiceNow has been a steady gainer on the stock market as well, and it looks primed to keep gaining as its competitive advantages are only getting stronger as it gains scale.
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. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Meta Platforms. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Meta Platforms, Microsoft, Nvidia, and ServiceNow. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
