Forget Nvidia and buy this great tech stock instead

NVIDIA (NVDA 3.97%) NVIDIA has been the stock everyone’s talking about for quite some time now. And for good reason: the company boasts roughly 80% market share in artificial intelligence (AI) chips, which has translated into record revenue. Even better, NVIDIA’s focus on innovation means its dominance is likely to continue.

That said, Nvidia shares aren’t cheap, and they’ve been declining recently — down about 7% over the past month and about 15% from the all-time highs they hit this summer — but I believe this loss of momentum is temporary and that this top tech company remains a great long-term investment.

But right now, there’s a stock that’s recently gained momentum, is in the early stages of a modern growth story, and is cheap. This stock, too, is a great long-term investment. That’s why today, I want to forget about Nvidia and buy this great tech stock instead.

Image source: Getty Images.

Focus on cloud infrastructure

So which company am I talking about? Oracle, a company long known for its database software but now becoming a key player in the world of AI. (ORCL 1.86%)As the AI ​​boom gathers steam, the tech company’s focus on cloud infrastructure and services has proved to be a smart strategy.

The cloud services division is now the company’s largest business, and operating profits and earnings per share have soared. Other financial metrics have also shown impressive growth. For example, cloud infrastructure revenues soared 45% year-over-year to $2.2 billion in the recently concluded first quarter of fiscal 2024. Importantly, remaining performance obligations have soared 53% to $99 billion. This metric of unbilled revenue helps forecast future growth.

We also like the fact that Oracle’s return on invested capital, which had declined in recent years, is starting to turn around, suggesting the company is steadily reaping benefits from its investments in growth.

ORCL Return on Invested Capital data from YCharts.

Now, let’s take a closer look at why Oracle is succeeding. After all, Oracle is a much smaller cloud player compared to market leaders Amazon Web Services (AWS) and Microsoft Azure. What wins for Oracle is the versatility that allows customers to consume its services both directly through Oracle and through other cloud services. The company recently signed a deal with AWS and has already signed similar deals with Microsoft and Alphabet’s Google Cloud. These deals are helping Oracle’s database business grow at a faster rate.

The company’s cloud database services revenue grew more than 20% in the most recent quarter, and the company expects the segment to become its third growth driver after cloud infrastructure and strategic software services.

Access to AWS customers

These agreements with the largest cloud infrastructure providers mean that customers who want to use Oracle products and services don’t have to choose just one cloud service. This flexibility is appealing to customers with diverse workloads. The agreement with AWS in particular is significant in that it gives Oracle exposure to a huge customer base, as AWS is the largest cloud service provider in the world.

“AWS customers will have easy and convenient access to Oracle Database when the service launches in December of this year,” said Oracle CEO Safra Catz.

And let’s not forget that AI is still in its early stages: Research firm MarketsandMarkets predicts that the AI ​​market will be worth about $215 billion this year and grow to more than $1.3 trillion by the end of the decade, suggesting that Oracle has a long growth road ahead of it.

Now, let’s look at valuations. Oracle shares trade at 26 times forward earnings, while NVIDIA shares trade at 40 times forward earnings. Given Oracle’s recent performance and future outlook, the stock looks reasonably priced even after the 2024 rally. Oracle shares are up about 58% so far this year as investors praise the company’s progress in the AI ​​market.

That means if you’re looking to buy a single AI stock right now, you might be better off forgetting about Nvidia for a moment and turning your attention to this bargain pick that has plenty of room to grow in both the short and long term.