The technology sector is currently experiencing something of a renaissance as breakthroughs in artificial intelligence (AI) have ignited newfound interest from investors.
Among the top AI opportunities are a small cohort of megacap tech companies collectively referred to as the “Magnificent Seven.” Over the last year and a half, semiconductor company Nvidia (NASDAQ: NVDA) has returned 628% — more than any other member of the Magnificent Seven.
Nvidia is undoubtedly playing a big role in the AI revolution, and its near-term prospects look very strong. But what about the long term?
Among its Magnificent Seven peers, I see Amazon (NASDAQ: AMZN) as the superior investment opportunity. Let’s explore why Nvidia is currently on a roll, and assess the long-term prospects of the chipmaker versus Amazon.
Nvidia is supercharged, but competition lingers
Generative AI applications, such as training large language models, machine learning, and accelerated computing, rely on a couple of key components. Namely, sophisticated semiconductor chips known as graphics processing units (GPUs), as well as data center network services, are integral for AI use cases.
Right now, Nvidia sits conveniently at the intersection of GPUs and data center operations. Currently, the company is estimated to have 80% of the addressable market for AI chips.
This commanding lead has translated into record revenue, margins, and cash flow.
NVDA Revenue (Quarterly) Chart
The slope of the lines in the chart above underscores Nvidia’s dominance. Demand for the company’s chips and data center services is robust, and has provided Nvidia with a lucrative source of pricing power. However, Advanced Micro Devices and Intel are developing a suite of alternative GPUs.
Although neither company has anywhere near the market share of Nvidia today, the longer-term secular tailwinds fueling AI suggest that there could be an opportunity to make up ground as Nvidia faces the challenge of matching customer demand trends with supply output.
Furthermore, Nvidia is not only facing competition from other chip businesses. Meta Platforms…
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