Prediction: 5 stocks that will be worth more than Nvidia stock in 3 years

In the past 30 years, no next-generation trend or innovation has rivaled the emergence of the Internet. But artificial intelligence (AI) has the potential to do for this generation of businesses what the Internet did for American businesses 30 years ago.

Analysts at PwC predict that by the end of the decade, AI, which relies on software and systems instead of human oversight, will add $15.7 trillion to global gross domestic product (GDP). No company has benefited more directly from the AI ​​revolution than semiconductor stocks. nvidia (NVDA 0.01%).

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NVIDIA stock could be a bubble

In 15 months, Nvidia’s value soared from $1.9 trillion to $2.26 trillion. microsoft and apologize Among U.S. listed companies

Nvidia’s outstanding performance reflects overwhelming demand for its high-performance A100 and H100 graphics processing units (GPUs). Some analysts believe Nvidia’s top chips could account for more than 90% of GPUs deployed in AI-accelerated data centers this year. The early-stage scarcity associated with these chips has given Nvidia exceptional pricing power.

But there are also many reasons to believe that Nvidia is in a bubble.

For example, all the next big trends and innovations over the past 30 years have come through infancy bubbles. Investors have a habit of overestimating the adoption of new technologies, and we expect AI to be no exception.

Additionally, Nvidia’s pricing power is likely to weaken in the quarter as new competitors enter the space and the company’s own production reduces the shortage of AI-GPUs. Much of Nvidia’s 217% data center revenue growth in fiscal 2024 (ending January 28, 2024) can be traced to its pricing power.

The biggest concern may be that its top four customers, which are part of the “Magnificent Seven” and account for about 40% of revenue, are all developing their own AI chips for data centers. One way or another, Nvidia’s top customer orders are likely to decline in the coming quarters.

If history rhymes once again and the AI ​​bubble bursts, Nvidia’s market cap (relative to its current position) could diverge and allow other companies to surpass it.

Excluding Microsoft and Apple, which are already ahead of Nvidia, five companies have tools and intangibles that could be more valuable than Nvidia three years from now.

1. Alphabet: Current market capitalization of $1.88 trillion (Class A stock, GOOGL)

The first industry giant that should have no trouble surpassing Nvidia’s market capitalization over the next three years is none other than Nvidia. alphabet (google 3.02%) (GOOG 2.79%)Venture companies include the parent company of Internet search engine Google, streaming platform YouTube, and self-driving car company Waymo.

The reason Alphabet will hold up so much better than Nvidia once the AI ​​bubble bursts is because it has a true monopoly on Internet search. In March, Google accounted for more than 91% of global Internet search share. Looking at nine years of monthly data from GlobalStats, Google has never ceded more than 10% of its global Internet search share to any other company. combined. This is a clear and obvious choice for advertisers looking to get their message across to users, and will reap huge benefits over a long period of domestic and international growth.

Even if Nvidia fails, Google Cloud can succeed too. Enterprise cloud spending is still in its infancy, with Google Cloud accounting for 10% of the global cloud infrastructure services share as of September 2023. Because cloud margins are traditionally higher than advertising margins, Alphabet’s cash flow growth could accelerate in 2023. Late in the decade.

2. Amazon: Current market capitalization of $1.87 trillion

An e-commerce giant like Alphabet Amazon (AMZN 0.33%) If the AI ​​bubble bursts, it could end up ahead of Nvidia at some point over the next three years.

Most people are familiar with Amazon, the world’s leading online marketplace. By 2023, approximately 38% of U.S. online retail spending will occur on e-commerce sites. But the real benefit of having more than 2 billion people visiting Amazon’s website each month is the advertising revenue it can generate and the subscription revenue it generates through Prime. Amazon surpassed 200 million Prime users in April 2021, and that number will almost certainly increase since it became Amazon’s exclusive streaming partner. thursday night football.

But Amazon’s best cash flow driver is its cloud infrastructure services platform. Amazon Web Services (AWS) consistently generates 50% to 100% of Amazon’s operating profits, despite accounting for one-sixth of the company’s net sales. According to Canalys, AWS is the world’s leading cloud infrastructure services platform by spend.

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3. Meta Platform: Current market capitalization of $1.24 trillion

Despite being a social media company meta platform (meta 1.19%) It’s betting on a future powered by AI and augmented/virtual reality, and the company’s core operations will help it sustain double-digit revenue growth and boost its valuation well beyond Nvidia in 2027.

Mehta’s ‘secret sauce’ is not a secret at all. Despite its metaverse ambitions and massive spending at Reality Labs, the company’s biggest role remains its social media empire. It is the parent of the most visited social site on the planet (Facebook) and attracted a total of 4 billion monthly active users across its suite of apps during the quarter ending in December. Just as advertisers are willing to pay a premium for Alphabet’s Google for its dominance of Internet search, Meta’s advertising pricing power tends to be superior in most economic environments.

Another reason why Meta can shine and completely close the roughly $1 trillion valuation gap with Nvidia over the next three years is its balance sheet. Meta is a cash flow machine. It generated more than $71 billion in net cash from operations last year and ended 2023 with $65.4 billion in cash, cash equivalents and marketable securities. This cash not only provides a cushion against downturns, but also gives Meta the luxury of seizing opportunities that other companies can’t.

Berkshire CEO Warren Buffett has overseen annual returns of about 20% in the company’s Class A stock (BRK.A). BRK.A data from YCharts.

4. Berkshire Hathaway: Current market capitalization of $908 billion (Class A stock, BRK.A)

The fourth company that could surpass the market capitalization of AI stock Nvidia in the next three years is a large company. Berkshire Hathaway (BRK.A -0.07%) (BRK.B -0.08%). Since Warren Buffett took over at Berkshire Hathaway in the mid-1960s, he has overseen average annual returns on the company’s Class A stock approaching 20%!

One of the main reasons Berkshire Hathaway has been a moneymaker for investors is because the “Oracle of Omaha” loves dividend stocks. Berkshire is expected to collect about $6 billion in dividends this year, and its five core holdings alone account for nearly $4.4 billion in total dividend income. Companies that pay dividends are often the type of business that is expected to grow in lockstep with the U.S. economy over the long term because they have recurring earnings and are time-tested.

Warren Buffett and his investment team are also interested in branded businesses with trustworthy management teams. For example, the $155 billion invested in Apple represents nearly 42% of Berkshire Hathaway’s investment assets. Apple is one of the most valuable brands in the world, and CEO Tim Cook has done a great job driving continued physical product innovation while also transitioning the company into a subscription-service-centric future.

5. Visa: Current market capitalization of $573 billion

5th stock worth more than artificial intelligence stocks in 3 years Nvidia is a payment processing giant Visa (V -0.29%). As things stand, Visa will need to close a valuation gap of nearly $1.7 trillion. But that could happen if the AI ​​bubble bursts and Visa continues to do what it has been doing for decades.

Revitalizing Visa is a long runway of opportunity for the company. We have a clear market share lead in credit card network purchase volume in the United States (the world’s largest consumer market), and we have a multi-decade opportunity to organically or actively drive payments infrastructure in underbanked regions such as the Middle East and Africa. I have it. Southeast Asia. Visa should be able to sustain double-digit revenue growth rates for the remainder of the decade, if not longer.

Another source of Visa’s success is its relatively conservative management. Although it could have been a huge success as a lender, management decided to keep the company focused solely on facilitating payments. The advantage of this approach is that Visa is not a lender and therefore does not have to set aside capital to cover loan losses during a recession. As a result, we consistently maintain profit margins of over 50%!