Forget Nvidia: Buy This Magnificent Tech Stock Instead

Nvidia (NVDA 3.97%) has been the stock everyone’s been talking about for some time – and for good reason. The company dominates the artificial intelligence (AI) chip niche with about 80% market share, and this has translated into record earnings. Even better, Nvidia’s focus on innovation means its dominance is likely to last.

That said, Nvidia stock isn’t cheap and has lost some ground recently. It has fallen about 7% in the past month and is down about 15% from the all-time high it hit this summer. I think the loss of momentum is temporary though, and I think this top tech company is still a fantastic long-term investment.

But right now, there’s a stock that’s recently gained momentum, is at an earlier stage in its latest growth story, and is cheap. This player also represents a great long-term investment. That’s why, today, I’d skip Nvidia and buy this magnificent tech stock instead.

Image source: Getty Images.

A focus on cloud infrastructure

So what company am I talking about? One that has long been known for its database software, but is now poised to become a key player in the AI ​​world: Oracle (ORCL 1.86%). The tech company has been focusing on infrastructure and cloud services as the AI ​​boom has accelerated, and that’s proven to be a smart strategy.

Today, the cloud services segment is the company’s largest business, and operating income and earnings per share have taken off. Other financial metrics also show amazing growth. Cloud infrastructure revenue, for example, rose 45% year-over-year to $2.2 billion in its recently completed fiscal 2024 first quarter. Importantly, remaining performance obligations rose 53% to $99 billion. This measure of revenue not yet billed provides visibility into its future growth.

I also like the fact that Oracle’s return on invested capital, which has declined in recent years, is starting to rise again — showing that the company is increasingly benefiting from its growing investments.

ORCL data on return on capital invested by YCharts.

Now let’s take a look at exactly why Oracle is succeeding. After all, it’s a much smaller cloud player than a market leader Amazon Web Services (AWS) or Microsoft Azure. Oracle gains its versatility by allowing customers to use its services directly through Oracle as well as through other cloud services. The company recently entered into an agreement with AWS and already had similar agreements with Microsoft and AlphabetGoogle Cloud — offerings that help Oracle boost the growth rate of its database business.

Its cloud database services revenue grew more than 20% in its most recently reported quarter, and the company expects this area to be its third growth driver, alongside cloud infrastructure and strategic software-as-a-service.

Access to AWS customers

These agreements with the largest cloud infrastructure providers mean that if you want to use Oracle products or services, you don’t have to choose just one cloud service — and that flexibility appeals to customers with diverse workloads. The AWS deal, in particular, is big because it gives Oracle exposure to a huge customer base because AWS is the world’s largest cloud service provider.

“AWS customers will have easy and convenient access to the Oracle database when we launch in December later this year,” said Oracle CEO Safra Catz.

It’s also important to remember that we’re still in the early days of this AI development. According to a forecast by research firm MarketsandMarkets, the AI ​​market is worth about $215 billion this year and will grow to more than $1.3 trillion by the end of the decade. This suggests that Oracle has a long way to go.

Now let’s take a look at the rating. Oracle is trading at 26 times forward earnings estimates, while Nvidia is trading at 40 times forward earnings estimates. Given Oracle’s recent performance and future outlook, the stock looks reasonably priced even after earnings in 2024. Oracle shares are up about 58% so far this year as investors cheer its progress in the AI ​​market.

All of which means that right now, if you’re looking to buy an AI stock, you might want to temporarily forget about Nvidia and go instead to this bargain player with plenty of room to run — short-term and long-term .