About thirty years ago, the advent of the Internet completely changed the arc of growth for American businesses. Since then, countless large-scale investments have been made with moderate success. However, the rise of artificial intelligence (AI) This is perhaps the first revolutionary innovation that gives the advent of the Internet a huge advantage.
With AI and machine learning, software and systems are able to learn and evolve without human intervention. The ability to become more proficient in performing their tasks, as well as learning new tasks, gives AI systems utility across most sectors and industries. This is likely the catalyst behind PwC’s supernatural estimate that AI could add $15.7 trillion to the global economy by 2030.
Despite this staggering figure, history teaches us that not all companies will benefit from large-scale innovation. Although Wall Street and investors are absolutely wowed by semiconductor stocks Nvidia (NASDAQ:NVDA)two hypergrowth AI stocks currently appear to be considerably smarter buys.
The foundation of the AI movement’s infrastructure could be in a massive bubble
On the surface, it is It’s easy to see why investors have flocked to Nvidia since the start of 2023. Last year, sales in the company’s Data Center segment jumped 217% to $47.5 billion, led by the A100 and H100 graphics processing units (GPUs). In particular, Nvidia’s H100 chips are the preferred choice for companies wanting to train large language models and run generative AI solutions.
Nvidia also benefited from the AI GPU shortage. While Nvidia reported 126% growth in net sales across all segments in fiscal 2024 (ended January 28), its cost of sales increased only 43%. This clearly indicates that the phenomenal pricing power for its in-demand GPUs is driving most of this sales growth.
But don’t expect this superior pricing power to last long. As the company increases its own production of A100 and H100 chips and new entrants enter the AI-accelerated data center space, the scarcity of high-power GPUs will decrease. Nvidia’s pricing power will likely weaken in the coming quarters.
Additionally, Nvidia is unlikely to see successively larger orders from members of the “Magnificent Seven” after this year. Its top four customers account for about 40% of its net revenue and all develop their own GPUs. Over time, this should reduce Magnificent Seven stock’s reliance on Nvidia’s infrastructure.
However, the biggest concern may well be that each The next big trend and innovation from 30 years ago has made its way through an early-inning bubble. Professional and ordinary investors have a terrible habit of overestimating the adoption and assimilation of new innovations. AI is very unlikely to be the exception, and arguably no company is more directly exposed to a bubble burst than Nvidia.
Instead of going against history, the following two supercharged AI growth stocks…
