Nvidia (NASDAQ: NVDA) is a growth stock that has captured the imagination of investors globally. Since the start of 2023, Nvidia stock has returned 746% to shareholders, crushing broader market returns by a wide margin. Valued at a market cap of US$3.03 trillion, Nvidia stock has now returned a staggering 26,500% to shareholders in the past decade.
Nvidia is part of the artificial intelligence (AI) megatrend, as its chips are used in data centres that power applications such as ChatGPT. The stock’s monstrous rise has meant that it now trades at 45.4 times forward earnings, which is quite steep, given that the average S&P 500 stock trades at less than 28 times forward earnings.
While Nvidia is leading the AI race, there are several other companies that are part of this rapidly expanding addressable market. Here are three such promising AI stocks that are cheaper than Nvidia.
Source: Getty Images
UiPath stock
Valued at US$7 billion by market cap, UiPath (NYSE: PATH) provides robotic process automation (RPA) solutions to enterprises, which is among the fastest-growing verticals. It allows companies to discover automation opportunities and build and manage software to automate these processes.
UiPath’s platform leverages AI capabilities such as NLP (natural language processing) and ML (machine learning) to support advanced automation. The company’s revenue rose by 16% year over year to US$335 million, while net income increased by 18% to US$0.13 per share.
Priced at 32 times forward earnings, UiPath stock is quite cheap, given earnings are forecast to rise over 50% annually between 2024 and 2028.
Analysts remain bullish and expect the tech stock to surge over 25% in the next 12 months.
Super Micro Computer stock
Valued at US$46 billion by market cap, Super Micro Computer ((NASDAQ: SMCI) has outpaced Nvidia in recent months, surging 858% since January 2023. However, it currently trades 34% below all-time highs, pricing the AI stock at 33 times forward earnings.
Super Micro Computer sells high-performance servers and is forecast to grow at an enviable pace. For example, Wall Street expects adjusted earnings to grow by 62% annually between 2023 and 2028.
Investment firm Bank of America forecasts the company’s share in the AI server market to increase to 17% in 2026, up from 10% in 2023. It also expects the market to grow by 150% through 2026.
Taiwan Semiconductor Manufacturing stock
The final AI stock on my list is Taiwan Semiconductor Manufacturing (NYSE: TSM), a tech heavyweight with a market cap of US$878 billion. TSM is the world’s largest manufacturer of semiconductor chips, and some of its biggest customers include Nvidia and Apple.
In the second quarter (Q2) of 2024, TSMC reported revenue of US$20.8 billion, up 33% year over year. Comparatively, adjusted earnings rose to US$1.48 per share, up from US$1.14 per share in the year-ago period.
The company’s high-performance computing business, which manufactures AI chips, accounted for 52% of sales and was the key revenue driver.
Priced at 26 times forward earnings, TSMC stock is really cheap, as analysts expect the bottom line to expand by 21.5% annually in the next five years. Given the average analyst price target estimates, TSM stock trades at a discount of 13% in July 2024.
