Nvidia (NASDAQ: NVDA) stands out as a primary player in the flourishing artificial intelligence (AI) sector. Renowned AI companies such as Microsoft, OpenAI, and Amazon leverage its cutting-edge GPUs for processing complex AI tasks. The relentless expansion in the AI market, driven by the pervasive adoption of generative AI tools for content creation and data processing, fuels the rapid growth rates anticipated for Nvidia. Nonetheless, at 30 times forward earnings and 16 times next year’s sales, Nvidia’s stock doesn’t exactly present as a steal.

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Aspiring investors seeking exposure to the AI market at more affordable valuations may find three viable stocks — Super Micro Computer (NASDAQ: SMCI), Taiwan Semiconductor Manufacturing (NYSE: TSM), and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) — a compelling alternative to Nvidia.

1. Super Micro Computer

Super Micro Computer, also known as Supermicro, specializes in high-performance server production, commanding a smaller market share than industry titans including Hewlett Packard Enterprise and Dell Technologies. However, it has established a high-growth niche with its dedicated AI servers.

Benefiting from a long-standing partnership with Nvidia, Supermicro gains access to the chipmaker’s top-tier data center GPUs ahead of its larger rivals, leading to a substantial surge in pre-built AI server sales. Notably, Supermicro witnessed a 46% revenue surge in fiscal 2022, followed by a 37% rise in fiscal 2023. Analysts anticipate a further acceleration to 103% growth in fiscal 2024. With its adjusted EPS more than doubling in both fiscal 2022 and 2023, and projected 70% growth in fiscal 2024, Supermicro’s stock, trading at just 27 times this year’s earnings, offers a promising opportunity.

Anchored to Nvidia, Supermicro epitomizes an AI company, far from a sluggish server firm, poised for continuous growth in lockstep with the expanding demand for Nvidia-powered AI servers.

2. Taiwan Semiconductor Manufacturing

Taiwan Semiconductor Manufacturing, commonly referred to as TSMC, assumes the mantle as the world’s largest and most technologically advanced contract chipmaker. The entity fabricates chips for an extensive array of “fabless” chipmakers, including Nvidia, Advanced Micro Devices, Apple, and Qualcomm.

Nvidia designs its own GPUs but entrusts TSMC’s foundries for chip production, renowned for crafting the world’s smallest, densest, and most power-efficient chips. Similarly, AMD, striving to rival Nvidia with its own data center GPUs, relies on TSMC for chip production. TSMC’s pivotal role in the global semiconductor and AI sectors, although susceptible to cyclical growth, positions it to reap substantial benefits from the thriving AI market.

Notwithstanding a 9% drop in revenue and a 21% decline in earnings in USD terms in 2023, amidst a cooled-off smartphone and PC market, TSMC forecasts over 20% revenue growth in 2024. The anticipation stems from a revival in said markets, coupled with the ramp-up in production of its latest 3nm chips, and the lucrativeness of the AI market. Analysts project 23% revenue and 10% earnings growth this year, rendering its stock, trading at merely 18 times forward earnings, a cost-effective conduit for profiting from the burgeoning AI market.

3. Alphabet

Google, a subsidiary of Alphabet, boasts ownership of the leading global search engine, a dominant online advertising business, and the third-largest cloud infrastructure platform. Its expansive ecosystem encompasses the most popular streaming video platform (YouTube), top mobile operating system (Android), and leading webmail service (Gmail).

Interweaving these services with its AI algorithms, Google has ventured into the generative AI domain with its Bard chatbot and Gemini large language models. Notably, Google ranks among the foremost purchasers of Nvidia’s data center GPUs and is actively developing its AI accelerators to reduce reliance on said chips.

While Google’s 2023 revenue witnessed a modest 9% increase, with its advertising business confronting daunting macro headwinds in the initial half of the year, subsequent growth reaccelerated in the latter half. The progression was fueled by lifted sales growth and expanded operating margins of its fortified cloud platform, featuring new AI tools. Anticipated 11% revenue and 16% earnings growth in 2024, combined with its stock trading at merely 21 times forward earnings, establishes it as another economical bourse for capitalizing on the ascendant AI market.

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