NVIDIA (NASDAQ:NVDA) is one of the hottest stocks of 2022. Up 206% for the year, it has vastly outperformed the markets. NVIDIA is well known for its success with artificial intelligence (AI) chips. Its A100 and H100 chips are what’s known as “accelerator chips,” graphical processing units (GPUs) that take over highly demanding tasks from the central processing unit (CPU). NVIDIA more or less has a monopoly on this type of computer chip. It has an 80% market share in AI accelerator chips. The next best alternative — Intel — doesn’t perform nearly as well in benchmark tests. So, NVIDIA is the king of the AI castle for the time being.
There’s just one problem: NVDA stock is extremely expensive.
Though the company is undeniably strong, its shares trade at 100 times earnings and 33 times sales. This is the kind of valuation you’d expect to have seen tech stocks trading at in 2021, not the high-rate world of 2023. The higher interest rates go, the more companies have to earn in order to be worth the investment. So, it’s a bit questionable for NVIDIA to be trading at 33 times sales right now.
That doesn’t mean that AI investments aren’t worth it, though. To the contrary, there are AI stocks out there that are growing just like NVIDIA while being much cheaper. In this article, I will explore Canada’s very own AI superstar that looks like a veritable bargain compared to NVIDIA.
Kinaxis (TSX:KXS) is a Canadian supply chain management software company. It has been around since the 1980s, but its business got a second wind with the rise of AI in the 2010s. The company builds software that helps people keep track of supply chain data, such as information about information and customer buying patterns. It has been doing this for decades, but now, with the advent of AI, it can process and interpret supply chain data more efficiently than before. Using Kinaxis software, business owners can get instant insights into how much inventory will be needed to fulfill expected customer demand. Previously, they would have needed to manually crunch data in order to get this information. Now, with AI, the insights are available on tap.
Kinaxis, like NVIDIA, is doing solid growth this year. For the year, its revenue is up 26%, and its earnings are up 16.3%. Over the long term — say three- and five-year periods — the growth is negative, but most of those periods were before 2023’s AI hype bonanza. Customers are now demanding AI-powered everything, and that’s beginning to show up in KXS’s earnings.
Cheaper than NVIDIA
While Kinaxis is growing just like NVIDIA, its stock is much cheaper. At today’s prices, it trades at
- 83 times earnings;
- 8.8 times sales;
- 7.9 times book value; and
- 75 times operating cash flow.
Certainly, this is an expensive stock. However, it’s much cheaper than NVIDIA, while also delivering decent growth this year. If you’re a value investor looking for an AI play whose valuation isn’t too out in the stratosphere, KXS could be one to consider.