nvidia (NVDA) 1.92%)) It is one of the greatest long-term investments ever. Since 1999, stocks have grown more than 285,000%, pushing the company’s market capitalization to trillions of dollars. The reason for Nvidia’s rise in prices was the rise of artificial intelligence (AI).
But Nvidia isn’t the only company exposed to the massive tailwinds of AI spending. In the long run, there’s another chipmaker that could potentially run for that money. Also, unlike Nvidia’s stock, this relatively small competitor is not at perfect prices. This means that patient investors can benefit from both rapid long-term growth rates and discount ratings.
AI spending is greater than most people expect
Almost everyone is well aware of the recent leap in AI innovation. The ChatGPT website accepts hundreds of millions of visitors each month, and its COO recently revealed that it has more than 400 million active users from around 300 million just a few months ago. Surprisingly, this growth occurred even as ChatGpt faced fierce competition with other AI models like DeepSeek.
But all of this growth is still on the end-user side. Currently, overall adoption rates for US companies remain below 10%, but there is currently a significant intake in AI adoption. This provides a great runway for long-term growth. And, like in the early days of the Internet, the ultimate power and widespread use of this paradigm-shift technology will be difficult to overestimate.
Global Consultancy McKinsey & Co. Think about the latest research on AI-generating only. The company believes that business recruitment alone can create economic impacts of between $2.6 trillion and $4.4 trillion. By 2040, we believe revenue from AI software and services will reach $1.5-4.6 trillion, from just $85 billion in 2022. Simply put, the pace and scale of the AI revolution will be even greater than most forecasts.
That’s great news for Nvidia. Its Graphic Processing Unit (GPU) – the key components that allow AI services and applications to exist – is considered the best in the business and gives the company a market share between 70% and 95% of AI GPUs. However, as the previous chip wars demonstrated, market shares vary over time, and Nvidia’s dominant position may not last forever. But even if that’s the case, there should be plenty of markets to sell.
It gives the company a brighter future despite its dramatically smaller market capitalization for Nvidia today.
One advanced microdevice could overtake NVIDIA
It will be a very difficult feat, but if you have to choose one company to fit the size of Nvidia within 10 years now, it will be an advanced micro device (NASDAQ:AMD). The company is currently at a sudden disadvantage in terms of technical capabilities and vendor lock-in. But it makes all the right investments to compete in the long term.
NVDA PS ratio data by YCHARTS.
Currently, AMD’s market value is a small percentage of Nvidia. And at least in terms of multiples like the price-to-sell ratio, its ratings are also quite small. However, the company was able to take over its R&D budget despite these headwinds. That budget is currently around 25% of revenue. Nvidia is absolutely large, but only 10% of its sales base.
AMD’s continued investment will allow us to launch next-generation graphics cards for games, such as the Radeon RX 9000 series cards. But it also allows you to slowly catch up with nvidia for the AI GPU. With the launch of the Mi325X chip, it has allowed Nvidia’s Blackwell chips to compete more directly with Nvidia’s Blackwell chips, and recent management has recently noticed that it will accelerate its product schedule to release new chips on an annual schedule to better compete and capitalize the boom in AI chip demand.
Will AMD overtake Nvidia in the next seven years? Nvidia’s own explosive rise shows that it is possible. But it will be a long and difficult path. Fortunately, the company continues to reinvest in new products. This is an effort that should be rewarded in the long term given the continuous growth in demand in the end market. In just a small portion of Nvidia’s rating, AMD is a big speculative bet for patient growth investors.
Ryan Vanzo has no position in any of the stocks mentioned. Motley Fool features advanced microdevice and Nvidia, and is recommended. Motley Fools have a disclosure policy.
