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Artificial intelligence (AI) stocks have soared over the past two years as optimism about the technology and its features continues to grow. As most investors know, one of the most notable good luck stories is Nvidia, which has gained more than 11 times the bear. market lows beyond 2022.
However, with Nvidia at war with Apple for the world’s largest market capitalization, investors will likely have less difficulty earning higher returns on smaller stocks. To that end, smaller stocks like the two discussed below would likely have been placed for a time Nvidia in 2025. A closer look shows why.
The number 1 and 2 corporations are the most productive investments in any given industry, and 2025 may be the year Advanced Micro Devices (AMD 1. 48%) emerges as Nvidia’s main competitor in the AI accelerator market.
Although Nvidia took an early commanding lead in the AI accelerator market, AMD has a history of catching up to (and sometimes surpassing) competitors, which could be the case with AI accelerators.
Admittedly, AMD’s ROCm is far behind Nvidia’s CUDA, a software platform that helps developers speed up application development. Such an advantage continues to reinforce Nvidia’s competitive lead.
However, Grand View Research projects a compound annual growth rate (CAGR) of 29% by 2030. Since Nvidia cannot meet the requirements amid this growth rate, AMD has a chance to compete.
Moreover, AMD remains a leading company in the PC, gaming, and embedded chip markets. While these segments have not grown as fast as the data center segment that designs the AI accelerators, they remain critical parts of the chip giant.
Still, those segments most likely held back the company’s growth. In the first nine months of 2024, profit of $18 billion grew by 10% annually.
The large drop in profits in the gaming and embedded systems segments has slowed this pace of expansion. However, the middle knowledge segment increased its profits by 107%, while the profits of the visitor segment (which manufactures PC chips) grew by 48% in this period.
Some of that sluggishness likely played a role in AMD’s 10% drop over the past year. And its P/E ratio is above 110, optimism about making better profits has pushed its P/E ratio to 25, its lowest point in two years.
That lower forward earnings multiple could provide an opportunity for buyers. As the data center segment continues with massive revenue gains, it could spark a recovery that takes the chip giant to all-time highs and beyond.
Under normal circumstances, a company like Shopify (SHOP 0.58%) would likely never experience an Nvidia moment. Numerous e-commerce platforms exist, leaving most of Shopify’s peers without a significant competitive moat.
However, Shopify has the largest e-commerce platform in the US, according to Oberlo. It achieved this by creating a fast, highly customizable site that marketers can create without prior coding knowledge. That technique eases the progression procedure and makes Shopify a viable option for more online sellers.
Moreover, it includes a merchant services segment that provides many of the ancillary services sellers need. This includes payments, inventory management, online marketing, and numerous other services.
In addition, consumers owe much of this simplicity and versatility to AI. Through its Shopify Magic AI tool, the company can provide personalized assistance with online store design, product placement, marketing, visitor management, and administrative tasks.
These teams represent the company’s competitive advantage, making Shopify an obvious choice for merchants. Additionally, because converting platform providers is a very disruptive process, consumers tend not to switch, which is something Shopify is worth doing.
Additionally, Grand View Research projects a 19% CAGR through 2030. In comparison, Shopify’s revenue in the first 3 quarters of 2024 was $6. 1 billion, a 23% increase from last year’s levels , which appears to exceed industry averages.
Most of these profits came from its business segments, indicating greater scope for profit expansion from existing customers. These gains have also helped the stock rise about 50% over the past year.
Indeed, with a P/E ratio more than 100 and a price-to-sales (P/S) ratio of 17, investors may question whether to buy this stock. However, its sales multiple remains well below where it was in 2021, and with its current growth, Shopify stock is in a strong position to inspire an Nvidia moment that drives massive stock gains.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Healy has positions in Advanced Micro Devices and Shopify. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Apple, and Shopify. The Motley Fool has a disclosure policy.
Market insight driven through Xignite and Polygon. io.