Semiconductor stocks have been red hot ever since ChatGPT hit the scene in late 2022. Thanks to a wave of new artificial intelligence applications, high-tech graphics processing units are all the rage. Nvidia is leading the charge in this market, with sales and stock prices shooting through the roof.
With Nvidia’s shares skyrocketing 222% in the past year, some investors are feeling a bit jittery. The question on everyone’s mind is whether the stock is flying too close to the sun.
Nvidia is set to report its fourth-quarter results on Feb 21, following a whopping 206% increase in revenue in the third quarter. Its current valuation of 97 times trailing earnings may seem steep, but if growth continues at this pace, it could be a bargain.
However, the semiconductor industry is known for its ups and downs. The demand for AI chips could plummet at any moment, leaving investors in the lurch. Buying Nvidia now at such a high valuation could mean heavy losses if the market takes a nosedive next year.
For those looking to jump on the AI bandwagon with less risk, consider investing in Alphabet (Google). With Microsoft and developers diving headfirst into the AI world, Alphabet is poised for long-term success.
So, while Nvidia may seem like the golden ticket, it’s essential to weigh the risks before taking the plunge. In this ever-changing market, a safer bet may be the way to go.
Alphabet’s AI prowess is better than you think
Semiconductor stocks have been soaring ever since ChatGPT hit the scene in late 2022. Thanks to a wave of new generative AI applications, graphics processing units capable of handling accelerated tasks are all the rage. With Nvidia leading the charge in this chip sector, its sales and stock price have been skyrocketing.
But with Nvidia’s share price jumping by a whopping 222% in the last year, some investors are starting to sweat. Is the stock flying too close to the sun?
Nvidia is set to report its fiscal fourth-quarter results on Feb 21. In the last quarter, total revenue shot up by a staggering 206% compared to the year before.
At a valuation of around 97 times trailing earnings, Nvidia’s price tag seems justified if its growth continues at this pace. However, the semiconductor industry is known for its ups and downs. The demand for AI-powered chips could come crashing down sooner or later. The uncertainty is real.
For those who missed the Nvidia train and are considering hopping on now, proceed with caution. The risk might be more than you bargained for. If you’re looking to dive into the AI revolution with a bit more stability, think about snatching up shares of Alphabet (Microsoft) for the long haul.
Why Alphabet is well positioned for AI’s next chapter
In addition to dominating the search business, Alphabet has also made a name for itself as a top player in the cloud computing services industry. Last year, they upped their game even more by introducing Gemini, a game-changing addition to their cloud offering.
When OpenAI dropped ChatGPT in late 2022, Alphabet was caught off guard. Gemini, formerly known as Bard, now offers a similar generative AI experience for consumers. But that’s not all – it also gives big-time Google Cloud customers the opportunity to create their own AI applications.
With Microsoft hot on their heels, Google is able to provide enterprise-level cloud customers access to a wealth of real-world data thanks to its various applications with billions of active users each month. For developers looking to make the most out of Google Cloud’s resources, Gemini is a game-changer.
A fair price
Google Cloud sales saw a whopping 26% jump in the third quarter, leaving competitors in the dust. With a massive market potential and a strong hold on search and location data, Google’s cloud business is primed for impressive growth over the next decade.
While most of Alphabet’s profits still come from Google Services, the cloud division is outpacing it in terms of growth. Google Services revenue climbed 12.5% in the fourth quarter, with operating income shooting up by 32%.
Despite its dominance and strong performance, Alphabet is still undervalued in the market, trading at just 21 times forward earnings expectations. Investors looking for a solid growth stock should consider Alphabet, particularly given its reliable income streams and potential in the AI space.
Sure, no investment is without risks. However, with Alphabet’s track record in advertising and cloud services, buying in now at a reasonable price could pay off in the long run.
As Microsoft and other developers continue to shape the tech landscape, Alphabet’s diversified portfolio and foothold in AI make it an enticing investment opportunity. Buying some shares now and holding on for the ride could prove to be a smart move.
So, should you put $1,000 into Alphabet today? Well, maybe not according to the Motley Fool Stock Advisor team, who have identified other stocks with even more potential. But with Alphabet’s solid performance and growth prospects, it could still be a wise choice for savvy investors.
Keep an eye on Alphabet as it navigates the ever-changing tech sector, and consider the advice of experts like the Stock Advisor team as you build your investment portfolio.
