3 AI Stocks That Are Worthy Challengers to Nvidia


  • These three AI stocks challenging Nvidia (NVDA) have strong positions in the rapidly growing AI market.
  • ASML (ASML): The company’s monopoly on EUV technology makes it well-positioned to capitalize on the semiconductor industry’s continued recovery.
  • Broadcom (AVGO): The chipmaker is benefiting from robust data center and AI spending in 2024.
  • Microsoft (MSFT): Microsoft’s robust cloud revenue growth and strong Azure commitments underscore its potential to rival Nvidia in the AI space.
AI Stocks Challenging Nvidia - 3 AI Stocks That Are Worthy Challengers to Nvidia

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Today, we will explore three artificial intelligence (AI) stocks challenging Nvidia (NASDAQ:NVDA), each poised with distinct strengths and growth potential for investors. With its cutting-edge GPUs and AI hardware, Nvidia has become the dominant force in the AI space. As a result, NVDA shares are up over 150% year-to-date (YTD).

According to the latest McKinsey Global Survey on AI, 65% of organizations have embraced generative AI, nearly doubling adoption rates in the past ten months. As the AI ecosystem evolves, numerous companies are emerging as strong competitors. With the global AI market projected to surge at a compound annual growth rate (CAGR) of over 35% from 2024 to 2030, opportunities are boundless. If you are looking for AI stocks challenging Nvidia, these three picks could be your ticket to generous returns in 2024 and beyond.

ASML Holding (ASML)

Closeup of mobile phone screen with ASML logo on computer keyboard
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The first pick among AI stocks challenging Nvidia is ASML (NASDAQ:ASML), the world’s largest producer of semiconductor manufacturing equipment. The Dutch company dominates the market in extreme ultraviolet (EUV) lithography systems, essential for advanced semiconductor nodes.

Yet, in the first quarter of 2024, ASML’s revenue dropped 22% year-over-year (YOY) to 5.3 billion euros, with net bookings at 3.6 billion euros compared to 3.8 billion euros in the previous year. Earnings per share (EPS) for the quarter also declined by 37% YOY to 3.11 euros, reflecting the impact of weaker-than-expected sales on profitability.

Management sees 2024 as a transition year, investing in capacity and technology for an anticipated market recovery. Key customers are likely to upgrade their systems in 2025. Analysts highlight ASML’s significant AI exposure in Europe, predicting a major increase in AI-related bookings next year.

Fitch Ratings has upgraded ASML’s long-term issuer default rating to A+ from A. The report cited ASML’s market dominance, technological leadership in EUV tools and strong cash flow despite industry risks.

Since January, ASML stock has returned over 40%. Shares trade at a forward price-to-earnings (P/E) ratio of 46.3x and a price-to-sales (P/S) ratio of 14.6x. Wall Street maintains a favorable outlook, with a 12-month median price forecast of $1,076 for ASML, implying a 2% upside potential. Interested readers may regard a decline toward the $1,000 level as a potential entry point.

Broadcom (AVGO)

broadcom (AVGO) logo outside office building
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Among today’s AI stocks challenging Nvidia is Broadcom (NASDAQ:AVGO). It emerges as a leading player in high-speed networking, providing cutting-edge solutions for modern digital infrastructure. Broadcom maintains a stronghold in custom application-specific integrated circuits (ASICs) as one of the largest semiconductor manufacturers globally.

On June 12, Broadcom reported consolidated net revenue of $12.5 billion for the second quarter, a 43% increase year over year. Excluding the contribution from the VMware acquisition, revenue was up 12%. Management noted that Broadcom was making strong progress in integrating VMware and accelerating its growth.

Broadcom has demonstrated significant organic growth, leveraging robust AI momentum through its diverse product range. As a result, revenues from AI was very strong at over $11 billion. The company stands to benefit from increased capital expenditure by major cloud giants. Meanwhile, management raised its fiscal 2024 revenue guidance to $51 billion. Finally, Broadcom announced a 10-for-1 stock split. This move could make the stock more accessible to a broader range of investors, potentially increasing demand.

Investors are pleased that Broadcom has expanded its partnership with Google Cloud. According to Morgan Stanley (NYSE:MS), Broadcom recently won a lucrative contract with Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) for its next-gen ASIC chips.

So far this year, AVGO stock has gained nearly 35% and offers a 1.3% dividend yield. Shares are trading at 30.7 times forward earnings and 16.2 times sales. In contrast, Nvidia boasts a forward P/E ratio of 47.1x and a P/S ratio of 38x, making AVGO a comparatively cheaper option.

Microsoft (MSFT)

Microsoft logo close up. Microsoft (MSFT) Flagship Store Fifth Avenue, Manhattan, NYC.
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We conclude our discussion on AI stocks challenging Nvidia with Microsoft (NASDAQ:MSFT). Positioned at the forefront of the AI revolution, Microsoft’s significant R&D spending, strategic acquisitions and partnerships have driven substantial growth across its business segments.

In late April, the tech giant reported solid third quarter 2024 results. Revenue rose 17% year over year to $61.9 billion, fueled primarily by a 23% increase in cloud revenue. Net income surged 20% year over year to $21.9 billion.

The company’s Azure cloud platform has been a key driver of growth, with revenue growing by 31% YOY. Microsoft is leveraging this growth to introduce AI-as-a-service features on Azure, capitalizing on the demand for AI solutions. Wall Street highlights that Microsoft’s partnership with OpenAI underscores its growth potential by integrating OpenAI’s technology into its products.

YTD, MSFT stock is up more than 16%. Meanwhile, shares change hands at 32 times forward earnings and 13.5 times trailing sales. Finally, analysts have a 12-month price target of $480 for MSFT, implying a potential upside of 9%.             

On the date of publication, Tezcan Gecgil did not have (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.

Tezcan Gecgil, PhD, began contributing to InvestorPlace in 2018. She brings over 20 years of experience in the U.S. and U.K. and has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Publicly, she has contributed to investing.com and the U.K. website of The Motley Fool.

Article printed from InvestorPlace Media, https://investorplace.com/2024/06/3-ai-stocks-that-are-worthy-challengers-to-nvidia/.

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