At one point Nvidia (NASDAQ:NVDA) stock was in official correction territory. Shares were down more than 20% on fears of a slowing artificial intelligence (AI) chip market. Not that the fears had any basis in fact. It was only because Super Micro Computer (NASDAQ:SMCI) failed to provide preliminary financial results when announcing its earnings release date that caused the stock to slide.
It indicated that investors were worried about Nvidia’s valuation. Having come so far so fast, the chipmaker was trading at nosebleed valuations. At such times, any sort of tremor in the marketplace can shake an overvalued stock’s foundation’s.
Although Nvidia stock has mostly bounced back, up about 13%, it still has a ways to go before reaching a new, all-time high. Also, it means investors might bail on it again at a moment’s notice. You may want to protect your downside by seeking out new AI stocks to grab now.
Because the chipmaker’s stock still carries lofty valuations, consider the three stocks below to make a windfall.
Qualcomm (QCOM)
Most investors know Qualcomm (NASDAQ:QCOM) as a premier chip stock for mobile handsets. But few realize that QCOM is an AI beast. Its Snapdragon 8S Gen 3 chip released last year powers the AI capabilities on Android phones like Samsung‘s Galaxy S24 series and smartphones from China’s OnePlus and Xiaomi.
Also, the Snapdragon chip can support dozens of generative AI models. Those include Meta Platform‘s (NASDAQ:META) Llama 2 and Alphabet‘s (NASDAQ:GOOG)(NASDAQ:GOOGL) Google Gemini. That suggests the chip can also make its way into lower cost phones and introduce the language models into their phones. We know Apple (NASDAQ:AAPL) wants to use Gemini in its next iteration of the iPhone.
It’s doubtful Qualcomm can achieve the same market valuation as Nvidia, if for no other reason than the growth trajectories of the various markets they target. However, as AI trickles down throughout technology ecosystems, more and varied uses for Qualcomm’s chips will become apparent. And because QCOM stock offers investors a better stock valuation than its rival, investors will reap a windfall grabbing its shares now.
Arista Networks (ANET)
Data centers are going to be a major component for the next phase of AI growth. Arista Networks (NASDAQ:ANET) should be a prime beneficiary. Hyperscalers such as Amazon (NASDAQ:AMZN), Meta and Microsoft (NASDAQ:MSFT) are relying upon data centers for their cloud computing services.
Additionally, Arista Networks makes the servers, routers, switches and network operating software data centers rely upon. The stock took a big hit earlier this month after an analyst said it would face increased competition from Nvidia. Not usually considered a rival, Nvidia’s acquisition of Mellanox several years ago positions it to enter the market.
Yet, Arista Networks counts all major hyperscalers as customers, primarily Meta and Microsoft, both seeking ways to become less reliant upon Nvidia. And Meta’s recent earnings proclamation that it plans to spend $35 billion to $40 billion on AI should see a lot of that money fall to Arista Networks.
ASML Holdings (ASML)
The last stock investors should consider running off with for windfall profits is ASML Holdings (NASDAQ:ASML). The Netherlands-based manufacturer of specialized chip equipment is a literal monopoly on certain high-end machines needed for producing AI chips.
ASML is the world’s only manufacturer of extreme ultraviolet lithography (EUV) machines. Taiwan Semiconductor Manufacturing (NYSE:TSM), Intel (NASDAQ:INTC) and Samsung are all customers buying the equipment to produce the advanced AI chips customers need. TSM, of course, is the world’s biggest foundry and counts Nvidia as a major customer.
The equipment manufacturer anticipates demand growing through 2025. And this year will be the first time ever ASML pre-builds its inventory in anticipation of future orders. Having supply on hand will shorten lead time and improve efficiency. If AI is going to grow, it is going to need ASML’s equipment.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
