There's no two ways about it. Nvidia(NASDAQ: NVDA) has been the proverbial talk of the town since 2023, shortly after OpenAI launched ChatGPT to start what would turn into a heated race for dominance of the artificial intelligence (AI) market.
While Nvidia had been using its graphics processing technology for AI purposes well before that, this was a clear growth catalyst. Now more than 80% of Nvidia's revenue is in its AI data center business, making that division nearly 10 times as big as it was just three years ago.
The stock has responded accordingly, of course. Not only has it earned a spot as one of the "Magnificent Seven" tickers, but it's outperformed all six other stocks in each of the past two years to become the planet's second-biggest company, as highlighted by The Motley Fool's own research arm.
But as the old adage goes, past performance is no guarantee of future results. Is Nvidia ready to repeat the feat, and then repeat it again and again for the foreseeable future? Keep reading.
The AI market that Nvidia dominates is changing quickly
There's little doubt that the artificial intelligence revolution is still in its early stages. Mordor Intelligence predicts that the AI hardware market alone is set to grow at an average annualized pace of 26% through 2030. Given Nvidia's dominance of the AI accelerator industry, this rising tide bodes well for the company as well as its shareholders.
And all things considered, Nvidia stock's forward-looking price-to-earnings ratio of 26 isn't an unreasonable premium to pay for an equity of this sort. This year's top line is expected to soar more than 50%, after all, pulling per-share profits up the same amount with it.
But, there's some thing else to consider.
It's not always easy to see, but most veteran investors can -- and will -- attest to the fact that things change in ways that only become obvious after the fact. The problem is, by then it doesn't matter.
The brewing change that should concern anyone interested in stepping into a stake in Nvidia at this time is the way the artificial intelligence hardware industry is evolving. While Nvidia is still the king of the industry, changes are surfacing. For instance, other compute-processing architecture designed by chip-design company Arm Holdings(NASDAQ: ARM) is not only proving more efficient for power-hungry applications like AI, but is proving more functional in terms of how artificial intelligence platforms increasingly operate.
Specifically, while Nvidia's core technology can successfully power both inference-based and training-based AI, as artificial intelligence tech becomes better developed and more specialized, Arm's inference-processing tech is emerging as a favored approach. Many industry experts consider inference to be the future of AI.
Even to the extent Nvidia can hold its own as inference-based models propagate, Nvidia is also now showing the world that it can't keep competitors at bay forever. Although it's modest progress, a growing number of AI service providers like TensorWave, Cirrascale, Vultr, and even Oracle and Microsoft are now buying Nvidia rival Advanced Micro Devices' (NASDAQ: AMD) newest artificial intelligence processors -- business that at one point in time would have almost certainly been Nvidia's to lose. Now it is. And AMD is arguably positioned to keep chipping away on this front.
It's a worry for Nvidia's fans and investors simply because they've never actually seen the company face credible competition like this within the AI arena. Finally seeing it could cast bearish doubts, crimping the premium valuation that most people didn't mind supporting through this point.
And never even mind the looming advent of quantum computing, which has enormous implications for the artificial intelligence industry with its whole new kind of computing potential.
The good news is, there's an alternative Magnificent Seven stock that is a compelling AI buy at this time.
A better artificial intelligence prospect
Don't panic if you already own Nvidia. You're hardly doomed. You'll likely be fine, in fact. A lackluster Nvidia is still a better bet than plenty of other companies on their best days.
If you're looking for a company with more artificial intelligence growth opportunity ahead of it than behind it, though, that company is Apple(NASDAQ: AAPL).
Not everyone sees it. Interest in the company's generative AI solution (called Apple Intelligence) released in October of last year has been ho-hum. It did not spur a great deal of demand for the iPhone 16 introduced in September, even though that device is capable of directly running the Apple Intelligence app rather than punting AI work to the cloud. iPhone revenue for the quarter ending in December fell a bit year over year.
Take a step back and look at the bigger picture, though. Apple's AI product itself is far from finalized, and perhaps more than that, consumers aren't quite ready to embrace the relatively new and unfamiliar technology. They will be, though. Wedbush analyst Dan Ives predicts that Apple's artificial intelligence effort will "spark a multiyear upgrade cycle that will result in a supercycle and ultimately drive iPhone growth."
Then there's Apple's work on the artificial intelligence chip design and manufacturing front.
While it's still not exactly clear how it intends to monetize them, reporting from last year indicates the company is working with Taiwan Semiconductor Manufacturing and Broadcom on Arm-based AI processors specifically meant for data centers. Most plausibly Apple will use them to serve iPhone owners and iOS users who choose to use Apple's existing and future artificial intelligence tools, keeping its customers in Apple's typical walled-off silo.
Never say never, though. Apple has taken a somewhat surprising step by integrating OpenAI's ChatGPT into Apple Intelligence, giving iPhone owners a seamless means of using the third-party AI platform. It may be a hint that the technology giant is willing to entertain other growth-minded partnerships in the future.
But what about the rise of quantum computing that poses a threat to Nvidia? Apple's artificial intelligence efforts have always been consumer-focused rather than on institutional needs. Quantum's high-level nature is mostly a non-factor for Apple.
Regardless of what's in store for Apple, Nvidia isn't likely to remain the rockstar stock it's been until now. You could certainly do worse than Nvidia, but you could very plausibly do better, too. The artificial intelligence hardware is simply changing a bit too much now to not disrupt this vulnerably valued stock's story.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Microsoft, Nvidia, Oracle, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
