Generative artificial intelligence (AI) uses large language models and other machine learning models to create novel media content such as text and speech, images and videos, even computer code and gene sequences. Nvidia (NASDAQ:NVDA) CEO Jensen Huang recently called it “the defining technology of our time.”
In fact, automating content creation could improve productivity across numerous industries, so companies are scrambling to take advantage. According to Bloomberg Intelligence, generative AI software sales could rise 6,260% to $318 billion by 2032, up from $5 billion in 2023. That presents a huge opportunity for investors.
For many, Nvidia may be the first stock that comes to mind. But I think a little known software company I will teach (NASDAQ:DCBO) is the better buy at the moment. Here’s why.
Nvidia: The early winner of the generative AI gold rush
Nvidia pioneered accelerated computing, a discipline that uses specialized hardware and software to accelerate sophisticated applications such as artificial intelligence (AI). Its graphics processing units (GPUs) have become the gold standard in AI infrastructure. “Nvidia’s chips support all of the most advanced AI systems, giving the company an estimated market share of more than 80%,” it said The Wall Street Journall.
Most investors see Nvidia as a chip maker, but software expertise has contributed significantly to the company’s success. According to Kevin Krewell of Tirias Research, Nvidia GPUs initially faced competition from other parallel processors, but none survived because they lacked supporting software ecosystems.
Nvidia had more foresight. In 2006, the company transformed its GPUs (originally intended for computer graphics) into general-purpose processors with the introduction of the CUDA programming model, and since then the company has continued to expand its software ecosystem.
Nvidia AI Enterprise, for example, is a suite of software frameworks and pre-trained models that help companies build a wide range of AI applications. The product suite includes Nvidia NeMo, a service that supports the development of custom generative AI models for speech, vision and language applications. Better yet, Nvidia offers on-demand access to NeMo via DGX Cloud, a cloud service that combines its AI Enterprise software with GPU-accelerated infrastructure to create a complete AI-as-a-service solution. Innovations like these should keep the company on a growth path in the coming years.
Nvidia has already benefited from the generative AI gold rush – its stock has nearly tripled in the past year – and remains well-positioned to benefit in the future. However, shares currently trade at 67 times earnings, which is a bit expensive considering Wall Street expects Nvidia to grow earnings per share by 35% annually over the next five years. For this reason, I think Docebo offers more potential to investors.
Docebo: A little-known software company that could benefit from generative AI
Docebo specializes in corporate learning management. The platform enables companies to create, curate, deliver and measure the impact of learning materials for internal (employees) and external (customers) audiences. Docebo has achieved a leading position in the market for corporate learning management through targeted innovation and differentiated products.
For example, Docebo was among the first education technology companies to integrate generative AI into their platform. Docebo Shape automates content creation by converting source material such as documents, presentations and case studies into learning content. The company plans to add more features this year, including a natural language interface that further simplifies content creation and virtual role-playing technology that provides real-time, personalized feedback.
Morgan Stanley Analyst Josh Baer recently selected Docebo as his “Top Pick” among education technology stocks, building on a previous report in which he ranked Docebo as one of 11 software companies best positioned to monetize generative AI. “Not only is Docebo revolutionizing the internal learning management system (LMS) market by taking market share away from legacy providers, but it is also leading the market in a new external learning opportunity,” he wrote.
Docebo reported strong financial results in the fourth quarter. Customer numbers increased by 11%, average contract value increased by 12% and the average existing customer spent 4% more. In return, sales rose 27% to $46 million and net income doubled to $0.10 per diluted share. Management highlighted momentum with larger customers during the quarter as Docebo signed one of the top four banks and expanded a deal with one of the top five technology companies.
Going forward, the learning management systems market is forecast to grow by 20% annually through 2030. However, Docebo has a history of outperforming the industry, and analysts expect this trend to continue. Wall Street expects Docebo to grow revenue by 25% annually over the next five years, but I think that estimate leaves room for upside depending on how successfully the company monetizes Docebo Shape.
In any case, the current valuation of 8.4 times sales seems cheap. The market is overlooking this software stock, even though the company is well-positioned to benefit from the explosive growth in generative AI spending. Patient investors should seriously consider buying a position in Docebo today.
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Trevor Jennewine holds positions at Nvidia. The Motley Fool has positions in and recommends Docebo and Nvidia. The Motley Fool has a disclosure policy.
Generative AI Software Sales Could Rise 6,260%: My Pick for the Best AI Stock to Buy Now (Note: Not Nvidia) was originally published by The Motley Fool