Tech stocks soared last year as excitement over burgeoning industries like artificial intelligence (AI) and cloud computing made Wall Street bullish. The Nasdaq-100 Technology Sector index rose 67% throughout 2023, significantly improving from the year before when it plunged 40%. And the market has shown no signs of slowing, making 2024 an excellent time to expand your position in tech.
Nvidia was one of the biggest winners last year as it snapped up a majority market share in AI chips. Its stock is up 230% year over year, making it an attractive option for investing in AI and tech in general. However, some tech stocks were slightly overlooked last year and could offer more value than the chipmaker.
So, forget Nvidia. Here are two tech stocks to buy instead.
1. Alphabet
As the home of potent brands like Google, Android, and YouTube, it’s impossible to deny Alphabet‘s (NASDAQ: GOOG) (NASDAQ: GOOGL) powerful role in tech.
The company’s services attract billions of users, which it has used to build a lucrative digital advertising business. According to data from Statista, the digital ad market is projected to reach $740 billion in 2024, with Alphabet responsible for about 25% of the industry. Popular platforms like Google Search and YouTube present almost endless advertising opportunities for the company and have seen its earnings soar in recent years.
Since 2019, Alphabet’s annual revenue has risen 75%, with operating income up 108%, outperforming competitors Microsoft and Apple in both metrics.
Additionally, Alphabet’s free cash flow has climbed 200% in the last five years to $78 billion, indicating the company has the cash reserves to invest heavily in its research and development and venture into new areas of tech — such as AI.
Alphabet is no stranger to AI. CEO Sundar Pichai recently described the company as seven years into its “journey as an AI-first company,” and it has ramped up its expansion in the market. In December, the tech giant unveiled its highly anticipated AI model, Gemini, which is expected to compete with OpenAI’s GPT-4 and will likely offer Alphabet significant growth potential in AI.
These charts show Alphabet’s stock is also significantly cheaper than Nvidia’s. The company has lower figures in two key valuation metrics: forward price-to-earnings (P/E) and price-to-sales (P/S) ratios. Forward P/E is calculated by dividing a company’s current share price by its estimated future earnings per share. Meanwhile, forward P/S divides its market cap by estimated revenue. For both metrics, the lower the figure, the better the value.
Forward P/E and P/S are great ways to determine the value of a company’s shares as they take into account its financial health against its stock price. In this case, Alphabet is a far bigger bargain than Nvidia on both fronts. Alongside solid positions in multiple areas of tech, Alphabet is a no-brainer right now.
2. Intel
Decades of almost unrivaled dominance in the chip industry saw Intel (NASDAQ: INTC) grow complacent, leaving it vulnerable to competition.
Between 2017 and 2023, its central processing unit (CPU) market share fell from 82% to 61%, while Advanced Micro Devices gradually grew in the sector. Then, in 2020, Intel lost one of its biggest customers when Apple ended a partnership between the tech companies in favor of in-house developed chips.
However, rather than throwing in the towel, recent challenges have seemingly lit a fire under Intel again. The company ventured into the desktop graphics processing unit (GPU) market for the first time last year, diversifying its business with a larger role in PC gaming. Meanwhile, it is gearing up to launch a range of new AI chips that could threaten Nvidia’s dominance over the long term.
The AI market is projected to expand at a compound annual growth rate of 37% through 2030 and surpass a value of $1 trillion before the decade’s end. The sector’s massive growth potential suggests Intel won’t need to dethrone Nvidia to still see significant gains from AI, which strengthens its long-term outlook.
Like Alphabet, Intel’s stock offers far more value than Nvidia. The tables above show Intel’s forward P/E and P/S ratios are substantially lower than its chip rival, making its stock less of a risk. Nvidia’s meteoric rise last year has made it an expensive option. However, Intel remains a bargain with significant potential in tech.
Should you invest $1,000 in Alphabet right now?
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, Microsoft, and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
Forget Nvidia: 2 Tech Stocks to Buy Instead was originally published by The Motley Fool
Source: finance.yahoo.com