Nvidia(NASDAQ: NVDA) has been one of the hottest artificial intelligence (AI) stocks on the market since the technology exploded in popularity toward the end of 2022. The company's graphics processing units (GPUs) are witnessing massive demand because of their ability to train large language models (LLMs) and handle inference workloads.
However, the recent price action suggests that Nvidia investors are now looking for alternatives to capitalize on the AI boom. Shares haven't exactly taken off following the release of Nvidia's fiscal 2025 second-quarter results late last month. Investors are probably skeptical of Nvidia's prospects because the company has grown at an incredible pace in recent quarters, and it may possibly head toward an eventual slowdown.
For instance, Nvidia's year-over-year revenue growth projection of 80% for the current quarter would be slower than the 122% growth it recorded in the previous quarter. It is also worth noting that the chipmaker finished fiscal 2024 with a 126% spike in revenue to $60.9 billion. Analysts are forecasting its top line to increase by a similar margin this year to $125 billion. But, as the following chart shows, Nvidia's growth is expected to taper off over the next couple of fiscal years.
NVDA Revenue Estimates for Current Fiscal Year data by YCharts
Of course, there is more to Nvidia's business than just the AI chip market. The company has a huge addressable market worth $1 trillion that could help sustain its outstanding growth for a long time to come. But even then, investors on the lookout for AI stocks that present better value right now would be tempted to look for alternatives. This is where Dell Technologies(NYSE: DELL) and Qualcomm(NASDAQ: QCOM) step in.
Let's look at the reasons why buying these two AI stocks instead of Nvidia could be a smart move.
1. Dell Technologies
Dell may not be a household name in the field of AI yet, but a closer look at the company's recent results and the nature of its business tells us that it could gain big from the growing adoption of this technology in the long run.
The company, which is known for manufacturing server platforms, personal computers (PCs), and peripherals, released its fiscal 2025 second-quarter results (for the three months ended Aug. 2) late last month. Dell's revenue increased 9% year over year to $25 billion, driven mainly by the healthy demand for the company's servers that are being used for mounting AI chips.
More specifically, Dell's infrastructure solutions group (ISG) revenue shot up 38% year over year to a record $11.6 billion. What's worth noting is that Dell's server revenue alone increased by a tremendous 80% from the same quarter last year to $7.67 billion. AI servers accounted for $3.1 billion in revenue last quarter, suggesting that the company is now getting a good chunk of its revenue from this fast-growing market.
What's more, Dell's AI server backlog stood at a healthy $3.8 billion at the end of the previous quarter. Management added that its "AI server pipeline expanded across both tier 2 CSPs and Enterprise customers again in Q2 and now has grown to several multiples of our backlog." That's not surprising as the AI server market is growing at a stunning pace.
According to one estimate, annual sales of AI servers could hit a whopping $430 billion in 2033 as compared to $31 billion last year. So, there is a good chance that Dell's server revenue could keep growing at a healthy clip in the long run.
At the same time, investors should note that there is another serious AI-focused catalyst for Dell in the form of the PC market. Market research firm Canalys estimates that the AI-enabled PC market could jump from annual shipments of 48 million units this year to 205 million units in 2028. Dell is the third-largest PC vendor in the world with a market share of 15.5%, which means that it is in a solid position to capitalize on this lucrative market.
The company's client solutions business, which accounts for sales of commercial and personal computers, was down 4% year over year in the previous quarter at $10.5 billion. However, Dell points out that it expects the incoming PC refresh cycle to drive a recovery in this business. In all, Dell sees an incremental revenue opportunity of $174 billion thanks to AI.
So, it won't be surprising to see the company's growth accelerating in the future. It has already raised its guidance for the current fiscal year and the discussion above indicates that it could keep raising its growth expectations because of AI. Attractively valued at just 14 times forward earnings, Dell's healthy long-term prospects could translate into impressive gains.
2. Qualcomm
Qualcomm is another incredibly cheap stock one can consider buying right now to take advantage of the growing adoption of AI in the smartphone and PC markets. It is currently trading at just 15 times forward earnings.
As one of the leading players in the smartphone processor space with an estimated market share of 31% in the second quarter of 2024, up from 29% in the same quarter last year, Qualcomm is well placed to capitalize on the booming AI smartphone demand. Counterpoint Research estimates that the global generative AI smartphone market could witness a 4x jump in shipments between 2023 and 2027.
The company has already established a solid lead in this market, as per Counterpoint, with half of the generative AI smartphones expected to be powered by its chips in 2024. Its main rival, MediaTek, is expected to have a market share of just 13% in AI smartphones this year. More importantly, Qualcomm is now clocking healthy double-digit growth thanks to the proliferation of AI smartphones.
The company's revenue in the third quarter of fiscal 2024 increased 11% year over year to $9.4 billion. Its adjusted earnings grew at a stronger pace of 25% to $2.33 per share. The company's revenue in the first nine months of the current fiscal year has increased by 5% to $28.7 billion. Analysts are expecting Qualcomm's top-line growth to accelerate to almost 10% in the next fiscal year.
The chipmaker's growth rate could continue to accelerate because of its dominant position in the market for AI smartphone chips. Observers have already seen how Nvidia's dominant position in the AI data center graphics card market has translated into stunning growth in the company's revenue and earnings. Qualcomm could follow in the footsteps of its more illustrious peer and could see its revenue and earnings growth getting supercharged thanks to the lucrative opportunity it is sitting on.
As such, investors should consider using the stock's attractive valuation to buy more shares as an acceleration in its growth could eventually lead to healthy stock upside in the long run.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Qualcomm. The Motley Fool has a disclosure policy.
