Nvidia’s AI Dominance: A Shifting Landscape
Nvidia (NVDA -0.75%) has been the talk of the town since 2023, riding the wave of the artificial intelligence (AI) boom following OpenAI’s launch of ChatGPT. The company’s graphics processing technology, already used for AI, became a clear growth catalyst. Today, over 80% of Nvidia’s revenue comes from its AI data center business, almost ten times larger than it was three years ago. This has propelled the stock, earning it a spot among the “Magnificent Seven” and outperforming the other six stocks for two consecutive years. However, as the old saying goes, past performance doesn’t guarantee future success. Can Nvidia maintain this trajectory, and is it poised to continue dominating the AI market for the foreseeable future?
The Evolving AI Market
The artificial intelligence revolution is still in its early stages. Mordor Intelligence projects the AI hardware market alone will grow at an average annual rate of 26% through 2030. Given Nvidia’s current dominance in AI accelerators, this rising tide should benefit the company and its shareholders. With a forward-looking price-to-earnings ratio of 26, the stock doesn’t appear unreasonably priced. This year’s projected revenue increase of over 50% should drive per-share profits up by a similar amount.
The Competitive Landscape
However, the most significant factor to consider is that the AI hardware industry is changing. While Nvidia remains the leader, competitors are emerging. For example, compute-processing architecture designed by Arm Holdings (ARM -0.08%) is proving more efficient and functional, especially for power-hungry AI applications. As AI technology becomes more specialized, Arm’s inference-processing technology is becoming favored. Many experts view inference as the future of AI.
Even if Nvidia can maintain its position in inference-based models, it faces growing competition. Several AI service providers, including TensorWave, Cirrascale, Vultr, Oracle, and Microsoft, are now purchasing AI processors from Nvidia’s rival, Advanced Micro Devices (AMD -0.61%). This shift is worrying for Nvidia’s investors because the company has never faced this level of competition in the AI arena. The rise of quantum computing, which has significant implications for AI, also presents a challenge.
Is Apple the Next AI Powerhouse?
While Nvidia’s future is uncertain, another Magnificent Seven stock offers compelling AI investment opportunities: Apple (AAPL 1.95%).
Apple’s AI Ambitions
Apple’s entry into the generative AI space with Apple Intelligence, released last October, has generated a lukewarm response. It did not significantly boost demand for the iPhone 16. However, its AI product itself is still in development, and consumers are still getting used to AI. Wedbush analyst Dan Ives predicts that Apple’s AI effort will “spark a multiyear upgrade cycle that will result in a supercycle and ultimately drive iPhone growth.”
Apple is also working on its own AI chip design and manufacturing efforts. Last year’s reports indicate the company is collaborating with Taiwan Semiconductor Manufacturing and Broadcom on Arm-based AI processors specifically for data centers. These processors may be used to enhance the existing and future features of Apple’s products, keeping its customers within Apple’s ecosystem.
An interesting development is Apple’s integration of OpenAI’s ChatGPT into Apple Intelligence, giving iPhone users easy access to the third-party AI platform. This integration may indicate the tech giant is willing to explore partnerships in the future to grow its capabilities.
Given that Apple’s AI efforts are consumer-focused, quantum computing is mostly a non-factor for the company, protecting it from some of the uncertainties facing Nvidia. While Nvidia isn’t likely to remain the superstar stock it’s been, Apple has the potential to become a significant player in the future of AI.
Investors could do much worse than owning Nvidia, but there is a good case for owning Apple as well, especially considering the rapidly evolving AI hardware landscape.
