Developing business strategies in the tech sector can change your investment options. Two adaptive tech companies may be more attractive than Nvidia right now.
There is no denying it. Nvidia (NVDA 2.61%) is on a roll. The chip designer has hit every earnings report out of the park since OpenAI unveiled its ChatGPT artificial intelligence (AI) tool, powered by the company's AI accelerator chips.
Trailing sales have increased by 126% in just five quarters. Free cash flow grew 610% during the same period, and Nvidia's stock price more than quadrupled.
Golf claps and lots of toes, please. Nvidia has made a lot of investors a lot of money in this AI boom, including yours truly.
But now is not the right time to buy more shares of Nvidia. The stock is trading at an incredibly high valuation ratio as the company's investors bet it will dominate the AI hardware arena for years to come. Since I'm not so sure about that, I recently took some Nvidia profits off the table to reinvest in some lower-priced but equally interesting growth stocks.
You don't want to sell Nvidia stock today. In any case, I wouldn't recommend buying more of it right now.
Due to Nvidia's inflated share price, I suggest you avoid buying this stock until it cools down a bit. But if you insist on buying AI stock now, take a closer look at the digital design software veteran. Autodesk (ADSK 0.07%) and semiconductor pioneer Intel (INTC 0.97%).
Autodesk's AI-powered strategy
Autodesk AI is rising to the occasion. The company is already a leader in creative AI tools, especially in the field of professional-quality 3D images.
“We can already generate 3D representations from images 10 times faster and with much higher quality than currently available 3D AI,” CEO Andrew Anagnast said in February's fourth-quarter earnings report.
To build on this industry-leading expertise, the company is rebuilding its core products around a shared, AI-powered design engine. The master plan is about product lifecycle management, where computer-aided design (CAD) can move from team to team within each client's operating structure without running into red tape and speed bumps. At the same time, software improvements and new features created to serve a target market can easily find use cases in other users and project types.
Again, Autodesk relies on high-quality machine learning and generative AI tools to deliver these planned efficiencies.
It's early days in a “multi-year process” and the upgrade path isn't smooth so far. Sales are increasing but not skyrocketing. Free cash flow has been low in recent quarters — and Autodesk has delayed the filing of year-end financial documents, after auditors found discrepancies in fourth-quarter cash flow calculations.
As a result, investors have taken a step back from the late paperwork issue, and Autodesk's stock is down 17% in the past month. It trades at 8.6x trailing sales and 36x free cash flow. That's a good deal ahead of Nvidia, with respective ratios of 33.8 and 76, respectively.
Yes, Autodesk is growing slower than Nvidia right now, and I don't like the possibly poor financial reporting. Still, I'm absolutely excited about the company's long-term business prospects as the modular, AI-powered software platform evolves.
I bought my first Autodesk shares two years ago, because the industry veteran's stock seemed undervalued from a long-term perspective. After a few wild swings, the stock price is back to where it was in April 2022, but the previous sell-off is up 20% and AI Catalyst should add more value over time.
Intel's strategic shift towards AI and chipmaking services
Intel's business model is also changing. The company is still a top name in PC and server processors, but Advanced Micro Devices is gaining ground in both markets. On the other hand, Intel added to the AI boom from several angles, and its recently launched processor manufacturing business is expected to double its revenue in 2023.
This isn't your grandpa's chipzilla anymore. Some investors are not comfortable with Intel's turnaround strategy, expecting the company to defend its traditional processor business at all costs. But I'd rather own stock in a company willing to change with the times than watch an old titan stick to its old guns. Butch Cassidy and the Sundance Kid There's no happy ending, you know?
The Intel Gaudi 2 may not be the world's fastest AI accelerator, but AI system builders often don't seek maximum performance per chip. Intel delivers where it counts.
“Our Gaudi 2 AI accelerators continue to demonstrate price-performance leadership against the most popular GPUs,” CEO Pete Gelsinger said in a January earnings call. “In a recent blog published by Databricks, Gaudi 2 was shown to clearly deliver the best training and estimated performance per dollar based on public cloud pricing.”
Additionally, the next-generation Gaudi 3 accelerator will launch later this year with four times the processing power and double the networking speed of the current chip.
Image source: Getty Images.
The Xeon line of server processors is also front and center in the AI systems market, as the supercomputers that train the beefiest large language models (LLMs) use these chips to control the data-crunching activities of each accelerator module. Today, five of the 10 fastest supercomputers in the world rely on thousands of Intel Xeon processors. The largest, Argonne National Laboratory's Aurora system, even uses Intel GPUs instead of Nvidia's or AMD's. When each processor costs at least $11,600, sales of that chip will increase quickly.
The new and improved Intel is a serious AI competitor, with significant side gigs in traditional processor sales and semiconductor manufacturing. Intel is currently bleeding cash due to expensive upgrades and new construction of chipmaking facilities. But the stock trades at just 2.7x sales, more than 30 percent from its 52-week high.
Investors looking for a promising AI strategy and a flexible operating model may find Intel an interesting choice, especially at its current price. And that's why I'd rather buy shares of Intel and Autodesk than double down on my Nvidia position right now.