NVIDIA (NASDAQ: NVDA) was one of 2023’s top-performing stocks. Rising 208% for the year, it easily outperformed the S&P 500, and contributed disproportionately to the NASDAQ-100’s gains for the year. This year, going long (buying) NVIDIA shares is still a popular trade, as the stock is up 24% year to date. However, NVDA is now priced with much of its future growth in mind, trading at a whopping 68 times earnings and 33 times sales. That does not mean that NVIDIA stock is overvalued: growing earnings at 222%, it can “afford” to have a high P/E multiple. However, the stock’s rich valuation does mean that other AI stocks can be bought much more cheaply. In this article, I will share four of them.
Kinaxis
Kinaxis Inc (TSX: KXS) is a Canadian supply chain management company. It develops the well-known Rapid Response software platform. Businesses use Rapid Response to forecast supply chain variables like the inventory, orders, and inputs needed to build inventory. Rapid Response uses AI to make these predictions swiftly and accurately. Kinaxis trades at 8.3 times sales and 7.5 times book value, making it cheaper than NVDA by some metrics. It does have a higher P/E ratio than NVIDIA, so it arguably is not “overall” cheaper. Nevertheless, most of its valuation multiples are lower than NVIDIA’s, and its earnings grew 55% in the trailing 12-month period.
Shopify
Shopify Inc (TSX: SHOP) is a Canadian tech company that recently jumped into the AI fray. Its involvement in AI mainly consists of using generative AI to help business owners create product descriptions. Using Shopify’s AI, vendors can have hundreds of high-converting product descriptions written in a matter of seconds. In the past, this would require paying copywriters thousands in fees. SHOP is itself a pricey stock, trading at 15.3 times sales and 12 times book value. It has a higher 5-year compounded revenue growth rate than NVDA (although NVDA has a higher trailing 12-month growth rate).
Alphabet
Alphabet Inc (NYSE:GOOG) is the company that owns Google. Its stock is far cheaper than NVDA, trading at 28 times earnings, 6.3 times sales, and 6.7 times book value. Despite the (relatively) modest valuation, the company’s growth has been excellent, with earnings up at a 33% CAGR in the trailing 5-year period, and 43% in the most recent quarter. Alphabet has the highest market share in the globally relevant search business. It’s also an AI leader, having developed many of the core technologies that went into building ChatGPT. Its own AI Chatbot, Bard, is receiving good reviews from users.
TSMC
Taiwan Semiconductor Manufacturing (NYSE: TSM) is perhaps the cheapest AI stock on the market today. As NVIDIA’s contract manufacturer, it shares in that company’s success. At the same time, it is relatively cheap, trading at 21 times earnings, 6.4 times sales, and 4.6 times book value. I used to own TSM stock, but I sold it after a series of disappointing revenue reports that showed the company’s revenue declining. Though I got out at an 18% gain, I consider the sale a mistake: TSM rallied shortly after I sold it, thanks to an earnings release that guided for 20% earnings growth in 2024.
