Market momentum is turning against Nvidia, these two AI stocks could be worth buying today.
Nvidia, the AI chip leader and stock market darling (NVDA -1.78%) Since becoming the world’s most valuable company just a few weeks ago, NVIDIA shares have plummeted by more than 20%. Investors should think twice before rushing to buy at low prices. NVIDIA’s stock price has skyrocketed, and the company’s once-dominant position in the AI chip market is now uncertain.
Nvidia has grown rapidly over the past 18 months, but that growth has been dependent on a small number of customers.
Recent news broke that tech giant Apple, which will soon be rolling out AI technology for its iOS devices, has trained its AI models on Alphabet’s AI chips instead of Nvidia’s, creating a fissure in the notion that Nvidia, which owned 90% of the AI chip market, would have an advantage without major pressure from competitors.
Investors might be better off letting more air out of Nvidia and then reinvesting after the company’s second-quarter results are revealed.
Instead, consider these two great companies that are using AI to enhance their existing products. Their growth is coming at solid pricing, laying the foundation for strong long-term investment returns.
This software giant offers growth at a reasonable price.
Salesforce (CRM -3.59%) Salesforce is no stranger to the technology industry. The company pioneered the Software-as-a-Service (SaaS) business model. The company sells world-class customer relationship management (CRM) software, but has expanded significantly over the years to create a software ecosystem filled with tools to run nearly every aspect of a company. Salesforce went public in 2004 and is still growing. The company’s business segments, Sales, Services, Platform/Other, and Integration/Analytics, all saw double-digit year-over-year growth in the first quarter.
With over 150,000 businesses worldwide using Salesforce, there is fertile ground for growth through cross-selling of products. Currently, most of the revenue growth comes from expanding business with existing customers. The more a company uses Salesforce products, the harder it becomes to switch. Salesforce is not an AI-driven business, but it does use AI to enhance its products. The company released Einstein 1 Platform, an AI product that allows customers to use AI across Salesforce’s software ecosystem. Einstein can automate processes, introduce generative AI capabilities, analyze and streamline data, and more. Ideally, Einstein maximizes the experience of using Salesforce software, ultimately reducing the likelihood that customers will churn and increasing the likelihood that they will spend more money.
There are signs that Salesforce is a mature company. Management began buying back shares several years ago and instituted a dividend earlier this year. That’s a signal to Wall Street that Salesforce is making more profit than it needs and doesn’t know how to spend it other than returning it to shareholders. Analysts have also cut their long-term earnings growth forecasts over the past year.
CRM EPS LT Growth Forecast Data (YCharts)
The stock doesn’t look particularly cheap given lower growth expectations, but the PEG ratio of 1.4 still looks reasonable for long-term investors. Expectations of lower interest rates are rising, which could be a catalyst for increased growth in the technology sector over the next few years. Salesforce could realistically outperform current expectations, making the stock look cheap in hindsight. It’s best not to get complacent when it comes to a proven winner like Salesforce.
This AI stock is a strong candidate for recovery.
UI Pass (path -3.31%) The company is in trouble. Its shares are down 85% from their all-time high, it had a dismal most recent quarter, and its CEO suddenly resigned. Co-founder and former CEO Daniel Dines has returned as CEO, for now. UiPath specializes in business automation software that learns and replicates repetitive computer tasks — the type of machine-replacing-human story you don’t see in the movies. UiPath’s technology consistently earns leadership positions in third-party tests, such as Gartner’s prestigious Magic Quadrant system.
But UiPath clearly faces some challenges. The company’s first-quarter earnings included layoff announcements and a reduction in its annual recurring revenue guidance for fiscal 2025 from $1.725 billion to $1.73 billion to $1.660 billion to $1.665 billion. Management cited several excuses, including economic conditions, deal scrutiny and leadership changes. The company appears to have struggled to execute well under CEO Rob Ensslin, who has served as co-CEO since 2022 but only as sole CEO for a few months.
Daniel Dines, who has served as CEO/co-CEO since 2005, has returned and appears to have restored analyst confidence. Long-term earnings growth estimates have essentially bounced back to where they were at the start of the year, though they plummeted after the first quarter.
PATH EPS Long-Term Growth Forecast Data by YCharts
But the stock has not recovered. Currently, the stock trades at 32 times forward earnings, making it an incredible bargain if UiPath achieves expected earnings growth. Growing earnings at 40% annually is a tall order, and UiPath must prove it’s back on track. But investors who believe in the former CEO’s leadership may be staring at a rare buying opportunity today.
Suzanne Frey, an executive at Alphabet, serves on The Motley Fool’s board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet, Apple, Nvidia, Salesforce, and UiPath. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
