Nvidia (NASDAQ: NVDA) pioneered the ongoing surge in artificial intelligence. The mere mention of its name can elevate smaller AI firms, showcasing the profound impact it has had on the industry. Investors directly observed this phenomenon as AI-related stocks under Nvidia’s umbrella experienced exponential growth.
The rationale behind investors’ interest was straightforward. If Nvidia backs an AI stock, it must hold promise. While prudent investors should conduct thorough research before investing in these stocks solely based on Nvidia’s choices, certain AI stocks exhibit significant potential.
Highlighted below are some AI stocks that Nvidia might consider acquiring next, offering investors an opportunity to stay ahead of the curve rather than waiting for Nvidia’s strategic moves.
Alphabet (GOOG, GOOGL)
Nvidia could potentially explore a company it recently surpassed, namely Alphabet (NASDAQ: GOOG, NASDAQ: GOOGL). Despite a few setbacks in the AI race, Alphabet’s missteps have inadvertently created an attractive buying proposition.
With a 25 P/E ratio and a remarkable 142% surge in the past five years, the stock’s recent pullback indicates a market undervaluation of the company’s advertising network and cloud platform potential.
While Alphabet’s core operations are robust enough to drive further growth, the company maintains a substantial focus on artificial intelligence. Despite current challenges, Alphabet possesses a solid financial foundation, as evidenced by its fourth-quarter results.
In the last quarter, revenue escalated by 13% year-over-year, accompanied by a 52% surge in net income. Alphabet’s CEO, Sundar Pichai, highlighted the benefits of the company’s AI investments for Google Search, YouTube, and Cloud during the earnings release. Despite obstacles, Alphabet’s resilient business model positions it for future success.
Cadence Design Systems (CDNS)
Cadence Design Systems (NASDAQ: CDNS) has consistently outperformed the market, with shares climbing by 64% in the past year and an impressive 433% surge over the last five years. Leveraging generative AI, the company recently introduced pioneering AI technology that autonomously identifies and rectifies EM-IR violations, streamlining the product design process.
The company’s fourth-quarter performance reflects a growing market share, with revenue reaching \(1.069 billion compared to \)900 million in Q4 2022, marking an 18.8% year-over-year increase. Net income also rose by 34.7% year-over-year, resulting in a 30.3% net profit margin.
With exposure to AI and the introduction of proprietary solutions, coupled with robust financials, Cadence is well-positioned for sustained growth. Trading at a 51.5 forward P/E ratio, the stock has already gained 20% year-to-date, and the AI sector’s momentum could propel it further.
Palantir (PLTR)
Palantir (NYSE: PLTR) has experienced a notable resurgence, witnessing its stock value triple over the past year, fueled by strong growth and expanding profit margins.
Employing big data analytics powered by AI, Palantir enhances user experiences, securing numerous government contracts and venturing into the private sector.
The synergy between government and private clientele has been instrumental in Palantir’s success, evident in its achievement of GAAP profitability for the fifth consecutive quarter. In the Q4 2023 earnings report, revenue surged by 19.6% year-over-year, while net income more than tripled.
Bolstered by a 35% year-over-year increase in customer count, particularly from private enterprises, Palantir’s government revenue grew by 11%, and U.S. commercial revenue soared by 70% year-over-year. With a growing client base and top-tier software offerings, Palantir is poised for further growth.
While the stock trades at a relatively high 79 forward P/E ratio, which may deter some value investors, Nvidia’s historical investment patterns suggest a potential strategic fit for Palantir in its portfolio.
As of the publication date, Marc Guberti disclosed a long position in GOOG. The views expressed in this piece are solely those of the author, in accordance with the InvestorPlace.com Publishing Guidelines.
Marc Guberti, a finance freelance writer at InvestorPlace.com and host of the Breakthrough Success Podcast, has contributed to various reputable publications, including U.S. News & World Report, Benzinga, and Joy Wallet.
