AI stocks have surged considerably this year, fueled by remarkable growth and enthusiasm for this breakthrough technology, with NVIDIA Corporation (NVDA) reigning as the dominant force. Its stock soared over 50% year-to-date, propelled by robust earnings. However, recent sell-offs hint that gains were primarily sentiment-driven and vulnerable to market dynamics.
NVDA’s shares nosedived by more than 14% over the last five days, surpassing the NASDAQ Composite Index's nearly 5% drop and the Dow Jones Industrial Average Index's minor decline in the same period.
When stocks like NVDA and Super Micro Computer, Inc. (SMCI) experience monumental growth, even minor setbacks trigger profit-taking, leading to cascading sell-offs. A single adverse event can snowball into significant losses as investors rush to secure profits amid fears of a bubble burst, highlighting the fragility of market sentiment.
Investor concerns have mounted as SMCI plunged by up to 21% in the last five days, reflecting apprehension about its upcoming earnings report. Although the company scheduled the release for April 30, it refrained from preannouncing earnings, unlike in January for its second-quarter results.
Typically, companies preannounce earnings when results exceed Wall Street consensus estimates. The absence of such a preannouncement from SMCI has stirred concerns on Wall Street. Analysts fear the upcoming earnings report may not match the previous quarter's robustness and could fall short of expectations.
NVDA isn’t immune to broader market sentiment despite its size and buffering impact. NVIDIA's chips are integral to SMCI's server solutions, leading investors to correlate potential weaknesses in SMCI's earnings with NVDA.
Additionally, NVIDIA’s elevated valuation exacerbates market sensitivity. In terms of forward non-GAAP P/E, the stock trades at 30.58x, 34.1% above the industry average of 22.80x. Furthermore, its forward EV/Sales of 16.68x is 520% higher than the industry average of 2.69x, and its forward Price/Sales of 16.81x compares to the industry average of 2.69x.
Considering these factors, investors might explore alternative AI stocks poised to outperform NVDA in the near future. Amid NVDA's decline, these stocks offer diversified opportunities to capitalize on the burgeoning AI industry's growth potential.
Microsoft Corporation (MSFT)
Microsoft Corporation (MSFT), a leading tech company, posted stellar results surpassing analysts’ expectations, marking another quarter of double-digit growth in top and bottom lines. For the fiscal 2024 second quarter that ended December 31, 2023, the company’s total revenue surged 17.6% year-over-year to $62.02 billion and surpassed the consensus estimate of $61.13 billion. It reported a 32.5% increase in operating income to $27.03 billion.
Further, MSFT’s EPS increased 33.2% year-over-year to $21.87 billion and $2.93. That compared to analysts’ estimate of $2.77. The solid financial performance underscores the effective execution by MSFT's sales teams and partners, driving significant market share gains.
In addition to financial success, MSFT expanded its technological capabilities during the quarter. It integrated support for OpenAI's latest models, including GPT-4 Turbo, GPT-4 with Vision, and Dall-E 3, demonstrating its commitment to innovation and staying at the forefront of AI technology.
Furthermore, MSFT secured strategic partnerships and investments, enhancing its position in key markets. The company announced a $1.5 billion investment in G42, a leading UAE-based AI technology holding company, strengthening collaboration on AI initiatives and skilling programs globally.
Moreover, MSFT deepened its collaboration with Cloud Software Group Inc. through an eight-year strategic partnership agreement. This collaboration will drive cloud and AI solutions innovation, leveraging Microsoft Azure as the preferred cloud platform.
Looking ahead, analysts expect MSFT’s revenue to increase 15.3% year-over-year to $244.34 billion for the fiscal year ending June 2024. Its EPS for the current year is expected to grow 19.3% from the previous year to $11.70. For the fiscal year 2025, the consensus revenue and EPS estimates of $279.25 billion and $13.33 indicate increases of 14.3% and 13.9%, respectively.
Advanced Micro Devices, Inc. (AMD)
Advanced Micro Devices, Inc. (AMD) has spearheaded innovation in high-performance computing, graphics, and visualization technologies for over half a century. The company's recent enthusiasm revolves around the general availability of AMD Instinct MI300X accelerators, boasting industry-leading memory bandwidth performance for generative AI.
AMD has made significant strides in expanding its AI software ecosystem as well. The company has unveiled the latest version of its open-source ROCm™ 6 software stack optimized for generative AI. AI ecosystem leaders such as Databricks, Essential AI, Lamini, and OpenAI leverage AMD Instinct accelerators to provide differentiated AI solutions.
The company has also announced the AMD Ryzen 8040 Series mobile processors, featuring an integrated neural processing unit (NPU) on select models for AI. In 2022, AMD pioneered the introduction of an x86 processor with an on-chip NPU with the AMD Ryzen 7040 series mobile processors.
Furthermore, the company unveiled the AMD Ryzen 8000G Series desktop processors at CES 2024, the industry's first desktop PC processors with a dedicated AI NPU. At Microsoft Ignite, AMD and MSFT showcased how AMD Instinct MI300X accelerators, AMD EPYC CPUs, and AMD Ryzen CPUs with AI engines enable new services and compute capabilities across various domains.
Such innovative product launches have propelled AMD's financial performance. In the fourth quarter of fiscal 2023, AMD's non-GAAP revenue increased 10.2% year-over-year to $6.17 billion. Its non-GAAP gross profit grew 9.6% from the year-ago value to $3.14 billion. Also, the company's non-GAAP net income and EPS rose 12.2% and 11.6% from the prior year's period to $1.25 billion and $0.77, respectively.
Looking ahead, for the fiscal year ending December 2024, Street anticipates AMD’s revenue to increase 13.4% year-over-year to $25.72 billion, with its EPS expected to reach $3.60, marking a 35.7% rise from the previous year. These optimistic analysts’ projections underscore AMD's position as a leader in driving innovation in the AI computing landscape.
ServiceNow, Inc. (NOW)
ServiceNow, Inc. (NOW) excels in cloud-based platforms revolutionizing digital enterprise operations. Its AI-driven solutions empower businesses to streamline services efficiently, commanding a significant market presence. With more than 8,100 clients, including 85% of Fortune 500 companies, NOW's impact is profound.
In the fourth quarter of fiscal 2023, NOW showcased exceptional performance, reporting a remarkable 27% growth in subscription revenue and closing 70 deals exceeding $1 million. Moreover, platform workflows surged by an impressive 40%, underscoring its efficacy in enhancing operational efficiency and reducing costs.
The company’s fourth-quarter revenue increased 25.6% year-over-year to $2.44 billion, with non-GAAP income from operations seeing a 31.8% uptick from the year-ago value to $717 million. Additionally, its non-GAAP net income and net income per share came in at $643 million and $3.11, up 38.6% and 36.4%, respectively, from the prior year's quarter.
Moreover, NOW is forging strategic partnerships to integrate advanced analytics and AI capabilities to deliver tailored solutions. Strategic Collaborations with DXC and Amazon Web Services exemplify its commitment to innovation, ensuring industry-specific, AI-powered applications.
By expanding its alliance with EY organization and Visa Inc. (V), NOW is poised to revolutionize AI compliance, governance, and payment services. The acquisition of UltimateSuite further strengthens its automation and AI capabilities, driving operational efficiencies.
With continued generative AI advancements, NOW anticipates a promising 25% revenue growth in 2024, offering stability and long-term growth potential. Analysts predict the company’s revenue will grow 21.4% year-over-year to $10.89 billion for the fiscal year ending December 2024, with its EPS expected to total $13.09, marking a significant 21.5% rise year-over-year.
UiPath Inc. (PATH)
UiPath Inc. (PATH) operates within the burgeoning robotic processing automation (RPA) market, offering software solutions tailored to automate administrative tasks and optimize workflow processes. With a robust clientele exceeding 2,000 customers, each investing a minimum of $100,000 annually, PATH demonstrates its pervasive presence and appeal across diverse sectors.
Remarkably, PATH witnessed a 26% increase in its customer base year-over-year among clients spending at least $1 million annually, underscoring its widespread adoption among SMEs and major corporations. The trend aligns with the escalating demand for AI-driven solutions in recent years.
In the fourth quarter that ended January 31, 2024, PATH achieved notable financial milestones, with its total revenue surging by an impressive 31.3% year-over-year, reaching $405.25 million. This substantial growth was mirrored in its non-GAAP operating income, soaring by 59.6% compared to the previous year’s period, amounting to $110.52 million.
Furthermore, PATH's non-GAAP net income and non-GAAP net income per share rose 55.4% and 53.3% year-over-year to $128.51 million and $0.23, respectively.
PATH's recent attainment of authorized status within the Federal Risk and Authorization Management Program (FedRAMP®) also signifies a pivotal milestone, poised to expand the adoption of UiPath Automation Cloud™ Public Sector within federal government agencies. This accreditation reflects PATH's commitment to enhancing operational efficiencies through AI-driven automation, particularly within the public sector.
Additionally, the extended partnership between PATH and Google Cloud heralds promising prospects for customers seeking to embark on their automation journey. With PATH now available on Google Cloud Marketplace, clients can seamlessly access PATH's Business Automation Platform, leveraging Google Cloud's robust infrastructure to deploy and scale automation initiatives effectively.
As Wall Street anticipates a 19% year-over-year revenue surge to $1.56 billion for the fiscal year ending January 2025, coupled with a 7% growth in EPS to $0.58, PATH stands poised to capitalize on its innovative solutions and strategic partnerships, further solidifying its position as a frontrunner in the RPA landscape.
Bottom Line
The artificial intelligence (AI) sector's trajectory is remarkable, with the global AI market reaching $515.31 billion in 2023 and projected to soar from $621.19 billion in 2024 to $2.74 trillion by 2032, boasting a CAGR of 20.4%. This growth is fueled by increased AI applications, partnerships, small-scale providers, evolving business structures, and personalized service demands.
However, recent market volatility has prompted caution among investors, leading to a downturn in NVDA's stock. This vulnerability highlights the fragility of sentiment-driven gains, signaling a potential turning point for the stock. Meanwhile, alternative AI stocks such as MSFT, AMD, NOW, and PATH are poised for potential growth.
MSFT has demonstrated robust financial performance and technological innovation, while AMD's advancements in AI hardware and software position it as a leader in the field. NOW's cloud-based solutions and strategic partnerships offer stability and long-term growth potential, and PATH's success in the RPA market and strategic alliances underscore its promising future.
As investors reevaluate their portfolios amid NVDA's decline, these alternative AI stocks present diversified opportunities to capitalize on the industry's continued growth.
