Forget Nvidia: Here's My Top Artificial Intelligence (AI) Stock to Buy Instead - Latest Global News

Forget Nvidia: Here’s My Top Artificial Intelligence (AI) Stock to Buy Instead

There is no doubt that Nvidia (NASDAQ:NVDA) Thanks to the company’s critical role in advancing this technology, it has been one of the top artificial intelligence (AI) stocks to buy on the market over the past year and a half.

After all, training large language models (LLMs) like ChatGPT would not have been possible without chips from Nvidia. Major cloud computing companies and governments around the world are lining up to buy Nvidia’s AI graphics processing units (GPUs), which has led to stellar sales and profit growth for the company.

NVDA Revenue Chart (TTM).

NVDA Revenue Chart (TTM).

NVDA sales data (TTM) from YCharts

There’s a good chance Nvidia can maintain impressive sales and profit growth. Given the technological lead the company enjoys over its competitors, the company’s dominant position in the AI ​​chip market appears to be secure. However, there is a chance that investors who are reluctant to pay for Nvidia’s high valuation will look for alternatives to capitalize on the AI ​​boom.

Nvidia trades at 75 times trailing earnings. The company may be able to justify this valuation by maintaining its rapid growth, but for investors looking for a cheaper AI stock: The trading desk (NASDAQ:TTD) could turn out to be a top choice that could be an even better buy than Nvidia. Let’s look at the reasons for this.

The Trade Desk uses AI to gain market share in a lucrative niche

The Trade Desk offers advertisers a cloud-based, data-driven, programmatic advertising platform. This platform allows them to purchase ad inventory across multiple channels, set up, run and optimize advertising campaigns, and deliver ads to the right audience on the relevant platform in a cost-effective manner to increase advertisers’ return on investment.

The company uses real-time insights and algorithms to ensure advertisers using its platform get the most out of their advertising dollars. More importantly, The Trade Desk uses AI to ensure advertisers get more out of its platform. In 2018, the company launched an AI tool called Koa and began integrating it into its platform. Koa analyzed nearly 9 million searches per second “to help shoppers expand audience reach and spend more efficiently.”

More specifically, The Trade Desk claimed that Koa can help advertisers increase their reach by 3x and reduce costs by 20%. The company last year released a new AI tool called Kokai that uses 13 million ad impressions per second to “help advertisers buy the right ad impressions at the right price to reach audiences at the best time.”

Such AI-powered tools help The Trade Desk grow faster than the digital advertising market and accelerate its growth. For example, in 2023, the company’s revenue increased 23% to $1.95 billion. That was well above the 10.7% growth in digital ad spending last year. More importantly, The Trade Desk’s latest Q1 2024 results suggest that the company is gaining a larger share of the digital advertising market as it grows.

The company reported a 28% year-over-year jump in revenue to $491 million in its most recent quarter, a nice improvement over the 21% year-over-year growth in the same period last year. The company’s adjusted earnings margin before interest, taxes, depreciation and amortization (EBITDA) also increased by five percentage points compared to the same period last year.

Trade Desk earnings of $0.26 per share beat the consensus estimate of $0.22 per share. Sales also exceeded expectations of $480 million. Even better, The Trade Desk’s revenue forecast of $575 million is higher than Wall Street’s forecast of $567 million. The EBITDA forecast of $223 million also beat the consensus expectation of $219 million.

The company’s quarterly revenue forecast would represent a 23% increase from the year-ago quarter, while Adjusted EBITDA is expected to increase by a similar amount. It’s also worth noting that digital ad spending is estimated to grow 13.2% in 2024, and Trade Desk’s first quarter growth and second quarter forecast suggest it will once again outpace the market will grow.

The Trade Desk’s strategy of using AI to power its programmatic advertising platform will help the company capture a larger share of the digital advertising market. This should bode well for the company’s long-term growth. That’s because the digital advertising market is expected to generate $1.15 trillion in annual revenue in 2030, up from $420 billion last year, according to Grand View Research.

The Trade Desk therefore has a huge addressable opportunity in front of it, and the fact that it is gaining traction in the digital advertising market explains why analysts have increased their growth expectations for the company.

TTD sales estimates for the current financial year.  diagramTTD sales estimates for the current financial year.  diagram

TTD sales estimates for the current financial year. diagram

TTD sales estimates for current fiscal year data from YCharts

Investors can expect the stock to generate strong profits

Trade Desk stock currently trades at 21 times sales, a small discount to its five-year average sales multiple of nearly 24. Of course, the sales multiple is higher than the U.S. technology sector’s price-to-sales ratio of 7, but the growing Importance of Trade Desk in the digital advertising market could justify this.

If Trade Desk can maintain its current revenue multiple after three years and generates $3.52 billion in revenue in 2026, its market cap could rise to $74 billion, as shown in the chart in the previous paragraph. This suggests a jump of 72% from current levels.

Additionally, The Trade Desk is cheaper than Nvidia, which has a revenue multiple of 36. Investors looking for a relatively cheaper alternative to Nvidia can consider buying The Trade Desk as it could be a top AI stock.

Should you invest $1,000 in The Trade Desk now?

Before you buy stocks on The Trade Desk, consider the following:

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and The Trade Desk. The Motley Fool has a disclosure policy.

Forget Nvidia: Here’s My Top Artificial Intelligence (AI) Stock to Buy Instead was originally published by The Motley Fool

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