Despite its success, Nvidia isn’t the only tech company involved in the growth of AI. Some other companies may have even better long-term prospects.
Nvidia has been a major beneficiary of the boom in demand for artificial intelligence (AI). The company’s GPUs are invaluable tools for training large language models, which are the basis of generative AI. Big tech companies and cloud providers are buying up as many Nvidia chips as they can, and the results for the company have been impressive.
Over the past two years, Nvidia’s market cap has risen from about $424 billion to a whopping $3.1 trillion. It is now the second-largest company in the world, behind only Apple. However, despite its success, Nvidia is not the only tech company involved in the growth of AI. Some other companies may have even better long-term prospects, and three tech giants could surpass Nvidia in value in the next three years: Meta Platforms, Taiwan Semiconductor Manufacturing (TSMC), and Alphabet.
1. Meta Platforms
Meta Platforms is one of Nvidia’s largest customers. CEO Mark Zuckerberg recently announced plans to stockpile 350,000 of Nvidia’s H100 GPUs by the end of the year. Meta’s capital investments, which management expects to be between $37 billion and $40 billion this year, are only surpassed by large public cloud companies like Microsoft and Alphabet. Management expects these investments to continue to grow through 2025.
These massive investments won’t pay off immediately, but Meta is better positioned than almost any other company to integrate AI capabilities into its products. It sees opportunities to improve its advertising business, grow its enterprise messaging service (with custom AI chatbots), build the most popular consumer-facing AI assistant, and increase engagement on Facebook, Instagram, and its messaging apps.
Meta stock currently trades at a forward P/E ratio of around 26, which is reasonable for a company with its growth prospects. However, Meta could beat earnings estimates if its generative AI capabilities boost ad prices and engagement on Facebook and Instagram, opening up new revenue opportunities through enterprise messaging and interactions with AI assistants. With a market cap of around $1.35 trillion, Meta could quickly grow and surpass Nvidia in the next three years if one of its AI efforts starts to pay off.
2. Taiwan Semiconductor Manufacturing (TSMC)
TSMC is the world’s largest chipmaker. When a company like Nvidia designs a new chip, it turns to TSMC for manufacturing. TSMC’s biggest advantage is its scale. It drives more than 60% of all chip manufacturing spending, which allows it to reinvest more money into improving its manufacturing capabilities and making faster, more powerful, and more energy-efficient chips.
TSMC is relatively agnostic about who designs the chips: It can produce an Nvidia chip just as easily as it can a custom chip from Meta, Microsoft, or Alphabet. This puts TSMC in a less precarious position than Nvidia when it comes to the future of AI data center chips. Many of Nvidia’s largest customers are developing their chips specifically designed for training and running large language models. These chips aren’t as flexible to use as Nvidia’s, but they’re more energy efficient and less expensive to acquire, making them increasingly valuable as companies like Meta, Alphabet, Microsoft, and others refine and scale their AI development.
Meanwhile, TSMC is benefiting from rising spending and increasing competition for its limited resources. Its shares trade at about 26 times forward earnings, but it probably deserves a higher multiple, as high demand and competition should benefit its financial results. If TSMC sees its multiple expand and Nvidia shrinks, TSMC could surpass Nvidia’s market cap over time.
3. Alphabet
Alphabet is already the world’s fourth-largest company, but its market cap is still about $1 trillion behind Nvidia’s. However, there are good reasons to think that Google’s owner will increase its value faster than the chipmaker.
At the heart of Alphabet is Google Search. Despite regulatory pressure, Google is unlikely to lose its title as the world’s most popular search engine. This ensures that Google remains a key part of marketers’ advertising budgets.
AI has the potential to significantly grow Google’s cloud platform, which surpassed $10 billion in quarterly revenue for the first time last quarter. Google is winning many high-profile customers, including Apple, for its AI development platform on Google Cloud. Meanwhile, its Gemini for Workspace software is helping it increase average revenue per user and attract new customers.
Alphabet shares are trading at just 22 times forward earnings, which leaves room for the multiple to expand. This is especially true considering that the company’s bottom line growth is expected to remain very high thanks to significant share buybacks supported by Alphabet’s massive annual free cash flow. It’s surprising that investors aren’t already valuing Alphabet higher than Nvidia.
In conclusion, Meta, TSMC, and Alphabet are three tech giants that, thanks to their AI development and integration strategies, could surpass Nvidia in terms of market value in the coming years. As Nvidia continues to thrive, these companies are building solid foundations for a future in which artificial intelligence will play a central role, making them potential long-term winners in the technology sector.
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Original article published on Money.it Italy 2024-09-18 12:45:00. Original title: Le tre aziende tecnologiche che potrebbero superare Nvidia nei prossimi tre anni
