Top AI Stocks to Buy Amidst Nvidia's Plunge

AI stocks have surged considerably this year, fueled by remarkable growth and enthusiasm for this breakthrough technology, with NVIDIA Corporation (NVDA) reigning as the dominant force. Its stock soared over 50% year-to-date, propelled by robust earnings. However, recent sell-offs hint that gains were primarily sentiment-driven and vulnerable to market dynamics.

NVDA’s shares nosedived by more than 14% over the last five days, surpassing the NASDAQ Composite Index's nearly 5% drop and the Dow Jones Industrial Average Index's minor decline in the same period.

When stocks like NVDA and Super Micro Computer, Inc. (SMCI) experience monumental growth, even minor setbacks trigger profit-taking, leading to cascading sell-offs. A single adverse event can snowball into significant losses as investors rush to secure profits amid fears of a bubble burst, highlighting the fragility of market sentiment.

Investor concerns have mounted as SMCI plunged by up to 21% in the last five days, reflecting apprehension about its upcoming earnings report. Although the company scheduled the release for April 30, it refrained from preannouncing earnings, unlike in January for its second-quarter results.

Typically, companies preannounce earnings when results exceed Wall Street consensus estimates. The absence of such a preannouncement from SMCI has stirred concerns on Wall Street. Analysts fear the upcoming earnings report may not match the previous quarter's robustness and could fall short of expectations.

NVDA isn’t immune to broader market sentiment despite its size and buffering impact. NVIDIA's chips are integral to SMCI's server solutions, leading investors to correlate potential weaknesses in SMCI's earnings with NVDA. 

Additionally, NVIDIA’s elevated valuation exacerbates market sensitivity. In terms of forward non-GAAP P/E, the stock trades at 30.58x, 34.1% above the industry average of 22.80x. Furthermore, its forward EV/Sales of 16.68x is 520% higher than the industry average of 2.69x, and its forward Price/Sales of 16.81x compares to the industry average of 2.69x.

Considering these factors, investors might explore alternative AI stocks poised to outperform NVDA in the near future. Amid NVDA's decline, these stocks offer diversified opportunities to capitalize on the burgeoning AI industry's growth potential.

Microsoft Corporation (MSFT)

Microsoft Corporation (MSFT), a leading tech company, posted stellar results surpassing analysts’ expectations, marking another quarter of double-digit growth in top and bottom lines. For the fiscal 2024 second quarter that ended December 31, 2023, the company’s total revenue surged 17.6% year-over-year to $62.02 billion and surpassed the consensus estimate of $61.13 billion. It reported a 32.5% increase in operating income to $27.03 billion.

Further, MSFT’s EPS increased 33.2% year-over-year to $21.87 billion and $2.93. That compared to analysts’ estimate of $2.77. The solid financial performance underscores the effective execution by MSFT's sales teams and partners, driving significant market share gains.

In addition to financial success, MSFT expanded its technological capabilities during the quarter. It integrated support for OpenAI's latest models, including GPT-4 Turbo, GPT-4 with Vision, and Dall-E 3, demonstrating its commitment to innovation and staying at the forefront of AI technology.

Furthermore, MSFT secured strategic partnerships and investments, enhancing its position in key markets. The company announced a $1.5 billion investment in G42, a leading UAE-based AI technology holding company, strengthening collaboration on AI initiatives and skilling programs globally.

Moreover, MSFT deepened its collaboration with Cloud Software Group Inc. through an eight-year strategic partnership agreement. This collaboration will drive cloud and AI solutions innovation, leveraging Microsoft Azure as the preferred cloud platform.

Looking ahead, analysts expect MSFT’s revenue to increase 15.3% year-over-year to $244.34 billion for the fiscal year ending June 2024. Its EPS for the current year is expected to grow 19.3% from the previous year to $11.70. For the fiscal year 2025, the consensus revenue and EPS estimates of $279.25 billion and $13.33 indicate increases of 14.3% and 13.9%, respectively.

Advanced Micro Devices, Inc. (AMD)

Advanced Micro Devices, Inc. (AMD) has spearheaded innovation in high-performance computing, graphics, and visualization technologies for over half a century. The company's recent enthusiasm revolves around the general availability of AMD Instinct MI300X accelerators, boasting industry-leading memory bandwidth performance for generative AI.

AMD has made significant strides in expanding its AI software ecosystem as well. The company has unveiled the latest version of its open-source ROCm™ 6 software stack optimized for generative AI. AI ecosystem leaders such as Databricks, Essential AI, Lamini, and OpenAI leverage AMD Instinct accelerators to provide differentiated AI solutions.

The company has also announced the AMD Ryzen 8040 Series mobile processors, featuring an integrated neural processing unit (NPU) on select models for AI. In 2022, AMD pioneered the introduction of an x86 processor with an on-chip NPU with the AMD Ryzen 7040 series mobile processors.

Furthermore, the company unveiled the AMD Ryzen 8000G Series desktop processors at CES 2024, the industry's first desktop PC processors with a dedicated AI NPU. At Microsoft Ignite, AMD and MSFT showcased how AMD Instinct MI300X accelerators, AMD EPYC CPUs, and AMD Ryzen CPUs with AI engines enable new services and compute capabilities across various domains.

Such innovative product launches have propelled AMD's financial performance. In the fourth quarter of fiscal 2023, AMD's non-GAAP revenue increased 10.2% year-over-year to $6.17 billion. Its non-GAAP gross profit grew 9.6% from the year-ago value to $3.14 billion. Also, the company's non-GAAP net income and EPS rose 12.2% and 11.6% from the prior year's period to $1.25 billion and $0.77, respectively.

Looking ahead, for the fiscal year ending December 2024, Street anticipates AMD’s revenue to increase 13.4% year-over-year to $25.72 billion, with its EPS expected to reach $3.60, marking a 35.7% rise from the previous year. These optimistic analysts’ projections underscore AMD's position as a leader in driving innovation in the AI computing landscape.

ServiceNow, Inc. (NOW)

ServiceNow, Inc. (NOW) excels in cloud-based platforms revolutionizing digital enterprise operations. Its AI-driven solutions empower businesses to streamline services efficiently, commanding a significant market presence. With more than 8,100 clients, including 85% of Fortune 500 companies, NOW's impact is profound.

In the fourth quarter of fiscal 2023, NOW showcased exceptional performance, reporting a remarkable 27% growth in subscription revenue and closing 70 deals exceeding $1 million. Moreover, platform workflows surged by an impressive 40%, underscoring its efficacy in enhancing operational efficiency and reducing costs.

The company’s fourth-quarter revenue increased 25.6% year-over-year to $2.44 billion, with non-GAAP income from operations seeing a 31.8% uptick from the year-ago value to $717 million. Additionally, its non-GAAP net income and net income per share came in at $643 million and $3.11, up 38.6% and 36.4%, respectively, from the prior year's quarter.

Moreover, NOW is forging strategic partnerships to integrate advanced analytics and AI capabilities to deliver tailored solutions. Strategic Collaborations with DXC and Amazon Web Services exemplify its commitment to innovation, ensuring industry-specific, AI-powered applications.

By expanding its alliance with EY organization and Visa Inc. (V), NOW is poised to revolutionize AI compliance, governance, and payment services. The acquisition of UltimateSuite further strengthens its automation and AI capabilities, driving operational efficiencies.

With continued generative AI advancements, NOW anticipates a promising 25% revenue growth in 2024, offering stability and long-term growth potential. Analysts predict the company’s revenue will grow 21.4% year-over-year to $10.89 billion for the fiscal year ending December 2024, with its EPS expected to total $13.09, marking a significant 21.5% rise year-over-year.

UiPath Inc. (PATH)

UiPath Inc. (PATH) operates within the burgeoning robotic processing automation (RPA) market, offering software solutions tailored to automate administrative tasks and optimize workflow processes. With a robust clientele exceeding 2,000 customers, each investing a minimum of $100,000 annually, PATH demonstrates its pervasive presence and appeal across diverse sectors.

Remarkably, PATH witnessed a 26% increase in its customer base year-over-year among clients spending at least $1 million annually, underscoring its widespread adoption among SMEs and major corporations. The trend aligns with the escalating demand for AI-driven solutions in recent years.

In the fourth quarter that ended January 31, 2024, PATH achieved notable financial milestones, with its total revenue surging by an impressive 31.3% year-over-year, reaching $405.25 million. This substantial growth was mirrored in its non-GAAP operating income, soaring by 59.6% compared to the previous year’s period, amounting to $110.52 million.

Furthermore, PATH's non-GAAP net income and non-GAAP net income per share rose 55.4% and 53.3% year-over-year to $128.51 million and $0.23, respectively.

PATH's recent attainment of authorized status within the Federal Risk and Authorization Management Program (FedRAMP®) also signifies a pivotal milestone, poised to expand the adoption of UiPath Automation Cloud™ Public Sector within federal government agencies. This accreditation reflects PATH's commitment to enhancing operational efficiencies through AI-driven automation, particularly within the public sector.

Additionally, the extended partnership between PATH and Google Cloud heralds promising prospects for customers seeking to embark on their automation journey. With PATH now available on Google Cloud Marketplace, clients can seamlessly access PATH's Business Automation Platform, leveraging Google Cloud's robust infrastructure to deploy and scale automation initiatives effectively.

As Wall Street anticipates a 19% year-over-year revenue surge to $1.56 billion for the fiscal year ending January 2025, coupled with a 7% growth in EPS to $0.58, PATH stands poised to capitalize on its innovative solutions and strategic partnerships, further solidifying its position as a frontrunner in the RPA landscape.

Bottom Line

The artificial intelligence (AI) sector's trajectory is remarkable, with the global AI market reaching $515.31 billion in 2023 and projected to soar from $621.19 billion in 2024 to $2.74 trillion by 2032, boasting a CAGR of 20.4%. This growth is fueled by increased AI applications, partnerships, small-scale providers, evolving business structures, and personalized service demands.

However, recent market volatility has prompted caution among investors, leading to a downturn in NVDA's stock. This vulnerability highlights the fragility of sentiment-driven gains, signaling a potential turning point for the stock. Meanwhile, alternative AI stocks such as MSFT, AMD, NOW, and PATH are poised for potential growth.

MSFT has demonstrated robust financial performance and technological innovation, while AMD's advancements in AI hardware and software position it as a leader in the field. NOW's cloud-based solutions and strategic partnerships offer stability and long-term growth potential, and PATH's success in the RPA market and strategic alliances underscore its promising future.

As investors reevaluate their portfolios amid NVDA's decline, these alternative AI stocks present diversified opportunities to capitalize on the industry's continued growth.

Top 3 AI Stocks for 2024's Golden Year

Over the past year, generative artificial intelligence (GenAI) advancement has emerged as a key transformation within the tech industry. While conventional applications of AI continue to influence day-to-day activities like facial recognition, voice assistant technology, and e-commerce recommendations, GenAI presents breakthroughs in generating original content. This innovation transcends mere data analysis and interpretation.

The surge in GenAI technology is reinvigorating the tech industry following a period of reduced growth due to rising interest rates and the fallout from the pandemic boom. The industry grappled with lower earnings and layoffs throughout 2023.

Despite economic challenges, the industry saw unprecedented investments in GenAI startups – a stellar $10 billion globally in 2023, exhibiting a significant 110% surge as compared to 2021. The launch of OpenAI’s ChatGPT tool has particularly stimulated this growth, inciting an influx of venture capital funds into the groundbreaking sector.

Despite grappling with IT challenges in 2023, companies worldwide have actively been seeking opportunities to leverage GenAI for business transformation. According to the International Data Corporation, companies invested over $19.4 billion in GenAI solutions. As related infrastructural hardware, software, and IT and business services spending is set to double in 2024, estimates suggest an exponential rise to $151.1 billion by 2027, growing at an 86.1% CAGR.

Nevertheless, the widespread adoption and execution of GenAI remain weighed down by unanticipated complexities and concerns. The disruption of conventional operational structures and anxieties around employee and enterprise adaptability represent significant hurdles. Given geopolitical considerations, apprehensions around the potential misuse of technology are also prevalent. Nevertheless, these challenges do not obscure several opportunities that lie ahead.

As the world stands on the brink of an AI-driven transformation, the investment world is abuzz, anticipating the robust AI stocks poised to generate substantial wealth in 2024. As we delve deeper to discuss the AI behemoths, the investment potential of these enterprises can be deciphered from the intricate narratives of market dominance and innovative feats enshrined in their quarterly reports and strategic trajectories.

Some insights into each company's AI initiatives and growth potential are discussed below:

Microsoft Corporation (MSFT)

MSFT has been leading the charge in the GenAI revolution, largely credited to its substantial investment into OpenAI – the developer of ChatGPT. The integration of AI into a broad cross-section of its products and services has also played a significant role. The company had an excellent operational year in 2023, with anticipations for growth rate acceleration extending into 2024.

During the fiscal year of 2023, MSFT made extensive investments in GenAI and Azure cloud deployment, with predictions indicating a similar trend for this year. With easing macroeconomic challenges and increased focus on AI cloud services, CEO Satya Nadela remains optimistic about the long-term growth driven by OpenAI, the AI-backed startup.

MSFT's AI strategy is seeing fruition, with its intelligent cloud sector experiencing robust double-digit growth. This growth is largely attributed to AI advancements, contributing to a 21% increase in server products and cloud services in the fiscal first quarter of 2024.

The future for MSFT looks promising as AI integrations are only beginning to emerge. Marking one of the most significant shifts in the past three decades, MSFT commenced the new year with a major announcement reflecting the increasing influence of AI in daily life.

The tech giant launched Copilot, a suite of AI protocols to enhance productivity while using its products and services. The company's first quarter (ended September 30) financial results for fiscal 2024 revealed that 40% of Fortune 100 companies had adopted Copilot through MSFT's early access program.

With Copilot now available to its enterprise customers, investors are anticipating the manifold impacts of AI on MSFT's results. Further expanding MSFT's AI footprint, the "Copilot" key will be incorporated into the Windows PC keyboard, allowing users to launch Copilot instantly.

Furthermore, CFO Amy Hood suggests that the next-GenAI business could potentially be the swiftest-growing $10 billion business in history, with a bulk of this growth propelled by cloud technology.

During MSFT's fiscal first quarter of 2024, Azure's revenue saw a 29% year-over-year growth, surpassing some of its competitors. MSFT attributed "roughly three points" of Azure's growth to the increased demand for AI services.

Research firm Canalys reported that before the recent uptick, Azure's cloud growth had observed seven consecutive quarters of slower year-over-year growth. The report also indicated an increased demand following the debut of Copilot in September, reaffirming MSFT's stance that AI is driving its current growth surge.

Analysts expect MSFT's revenue and EPS to increase 15.2% and 5.8% year-over-year to $60.87 billion and $2.59, respectively, in the fiscal third quarter ending March 2024.

NVIDIA Corporation (NVDA)

The semiconductor industry leader NVDA’s considerable recognition for its AI advancements was evident when Microsoft-backed OpenAI's ChatGPT seized global attention in late 2022 – a tool reportedly trained using 30,000 of NVDA's A100 data center GPUs. Not surprisingly, the demand for NVDA's AI chips increased dramatically, with its flagship product, H100 data center GPU – achieving considerable success by 2023.

NVDA has been capitalizing on AI’s substantial growth, high-performance computing, and accelerated computing, which have effectively bolstered its Compute & Networking revenues. The surge in demand for GenAI and large language models using GPUs based on NVDA's Hopper and Ampere architectures is forecasted to enhance its data center end-market business.

NVDA witnessed an upsurge in Hyperscale demand while also noticing a robust uptake of AI-based smart cockpit infotainment solutions. Its strategic collaborations, particularly with Mercedes-Benz and Audi, are projected to essentially drive NVDA's knack in autonomous vehicles and other automotive electronics spaces.

NVDA would be working with the Foxconn Group in a pioneering move toward the inception of modern factories and industries, with an emphasis on leveraging AI in manufacturing processes.

NVDA anticipates a shipment of 2 million units of the H100 model by 2024. The current fiscal year foresees the company securing revenues of $58.80 billion, suggesting that H100 could be a significant revenue catalyst in the upcoming fiscal year.

Nevertheless, NVDA has the potential to substantially increase its H100 shipments in the coming year due to the supportive efforts of its supply chain partners alongside the introduction of upgraded chips. Reinforcing this optimism, the semiconductor maker projects fourth-quarter fiscal 2024 revenues to hit $20 billion.

However, investors must remain aware of the potential impact geopolitical tensions may have on NVDA's ability to maintain its powerful performance. Historically, China has been a major customer for NVDA, holding over 90% of China’s $7 billion worth AI chip market. U.S. export restrictions on high-end chips to China puts approximately $5 billion worth of orders at risk.

Also, NVDA currently trades at a forward non-GAAP P/E ratio of 40.09, illustrating that investors are paying a significant premium, potentially valuing the company’s stock. The forward PEG ratio of 0.95 can appear deceptively enticing, as though the stock is fairly valued; it simultaneously intimates that any downward revisions to the EPS might precipitate a substantial drop in stock value. So far, analysts have revised EPS estimates upwards. However, it should be noted that this trend may take a U-turn if these predictions fail to materialize fully.

UiPath Inc. (PATH)

PATH, identified as a forerunner in the workflow automation and process optimization space, effectively helps streamline manual operations via a user interface (UI) and application programming interface (API)-based automation.

PATH continues to incite discussion around its potential affiliation with GenAI and the implications this could have on its business growth or reduction. On the one hand, the prospective integration of gen AI into PATH's pre-existing platform is considerable. Equally compelling, however, is the suggestion that such AI technology could simplify some of PATH's specialist offerings.

The company announced the implementation of several AI-powered services to spur significant growth in its revenue by 2024. These advancements include enhanced features for their existing AutoPilot services and augmented cross-platform connectivity capabilities.

AutoPilot for Assistant, an AI auxiliary tool, is tasked with facilitating daily to-do lists. It employs cutting-edge GenAI alongside Specialized AI to ensure secure interaction with various systems and documents. Moreover, AutoPilot for Studio could augment productivity among seasoned professionals and novice developers by allowing them to integrate natural language into their projects.

The firm's PATH Clipboard AI achieved notable recognition in November 2023 when it was awarded a place amongst TIME's Best Inventions of 2023 in the Productivity segment. This notable AI tool eradicates the need for labor-intensive manual copy-pasting tasks, significantly streamlining productivity.

Longer-term projections see PATH well positioned to develop a foundational model designed to comprehend processes, tasks, screens, and documents – a method that drives automation.

Moreover, the software enterprise reported a robust fiscal result in its third quarter that ended November 30, 2023, leading it to achieve significant expansion in December. The dollar-based net retention rate during this period was an impressive 121%, indicating that existing customers had increased their purchases from PATH by 21% compared to the year-ago quarter – a testament to PATH's beneficial automation suite.

Initial indications suggest that GenAI may not overcome more potent task-specific platforms such as PATH just yet. Meanwhile, PATH stands to direct GenAI toward a positive rather than negative impact. Long-term certainty is still elusive, necessitating continuous innovation from PATH. Investors would do well to remain informed about the evolving AI narrative as it concerns PATH and other enterprise Software as a Service (SaaS) companies.

William Blair analysts initiated research coverage on PATH with an 'outperform’ rating. PATH focuses on complex, enterprise-grade processes, making its platform indispensable for its clientele. This is reflected by its high gross retention rate of 97%.

Analyst forecasts indicate a strong showing for PATH over the following years with continued growth and margin expansion. Furthermore, analyst Jake Roberge predicts an increase in the company's EBITDA from $84 million in 2023 to a staggering $223 million in 2024 and up to $280 million by 2025.