NVIDIA (NVDA -1.15%) Thanks to its rapid growth, it has long been one of the most coveted stocks on the market. Much of this growth in Nvidia stock can be attributed to booming demand for graphics cards that support a variety of applications ranging from gaming computers to data centers to vehicles.
However, the high-flying graphics card specialist fell out of favor as of 2022, down 57% year-to-date. Slowing momentum in its key gaming graphics processing unit (GPU) business, as well as US government restrictions on sales of data center chips to China, will weigh on Nvidia’s performance in the near term. Of course, Nvidia has enough catalysts in its pocket to turn things around in the long run.
But investors should stay away from this Nasdaq stock until there are clear signs of a turnaround in the company’s business. That’s especially true considering Nvidia continues to trade at an expensive 47x trailing earnings.
Further signs of weakness could push the stock lower given its high valuation, but there are other promising Nasdaq stocks that tech investors should consider now given their impressive growth and attractive valuations compared to Nvidia. With that in mind, let’s take a closer look at two of my favorite alternatives to Nvidia.
1. Advanced Micro Devices
Just like Nvidia, modern micro devices (AMD -0.92%) also sells graphics cards for data centers and personal computers (PCs). However, the company has been unaffected by the slowdown in the PC and gaming GPU markets thanks to a more diversified business and the market share gains it is scoring against intel.
The company ended the second quarter of 2022 with revenue up 70% year over year to $6.6 billion. Earnings rose 67% from the year-ago quarter to $1.05 per share. AMD is forecasting revenue to increase 60% to $26.3 billion in 2022, driven by growth in its data center and embedded businesses. The acquisition of Xilinx, which closed earlier this year, will play a key role in this impressive growth.
It’s worth noting that AMD looks set to continue its impressive growth for a long time to come. Analysts are forecasting a nearly 27% annual earnings growth rate for the company. That’s more than the 23% annual earnings growth analysts expect from Nvidia over the same period. It’s not surprising why AMD’s growth is expected to outpace Nvidia’s.
AMD has a much better outlook for the year to date, as we saw above. Nvidia, on the other hand, expects to post $5.5 billion in revenue in the current quarter after adjusting for a $400 million potential negative impact from restricting sales to China. The updated guidance for the third quarter of fiscal 2023 indicates a 19% decline in revenue compared to the same period last year. The chip manufacturer is expected to end the financial year with flat sales development.
Meanwhile, AMD is making solid strides in lucrative markets like data center processors, an area Nvidia has yet to break into. Also, AMD supplies its custom chips to companies like Microsoft, Sony, and Valve for their game consoles. These markets give AMD an advantage over Nvidia.
Momentum is on AMD’s side, as is valuation. The stock trades at 36 times trailing earnings, which is a nice discount to Nvidia. Additionally, AMD’s expected win multiple of 15x is well below Nvidia’s multiple of nearly 39x. Investors looking for an alternative to Nvidia should take a closer look at AMD given its impressive growth, bright prospects, multiple catalysts, and relatively attractive multiples.
2. Palo Alto Networks
Palo Alto Networks (PANW -1.33%) has come under the spotlight following management’s stock split announcement last month. However, a closer look at the company’s recent results and prospects shows that there are more reasons to buy than just the stock split.
The company released its fiscal 2022 results for the year ended July 31, 2022 on August 22. It ended the year with revenue up 27% year over year to $1.6 billion in the fiscal fourth quarter, while full-year revenue increased 29% to $5.5 billion. More importantly, the company’s billings are up 37% for the year to $7.5 billion.
The impressive growth in Palo Alto’s billings is an indicator of solid future growth. That’s because the company’s accounts relate to the money that hasn’t yet been recognized as revenue. Remaining performance obligations (RPO), the value of customer contracts still to be fulfilled, rose 40% year over year to $8.2 billion in the most recent quarter.
Unsurprisingly, Palo Alto is expecting another solid year for fiscal 2023. Revenue is expected to increase 25% this year to $6.85 billion to $6.90 billion. The company also expects adjusted earnings to be in the range of $9.40 to $9.50 per share, up 24% to 25% from earnings of $7.56 per share last fiscal year. The forecast for long-term earnings growth is similar, with analysts expecting Palo Alto to grow nearly 26% annually over the next five years.
The long-term growth in cybersecurity spending and Palo Alto’s solid position in this market should pave the way for impressive top-line and earnings growth for the company. All of this makes this cybersecurity stock worth buying, especially if you’re looking for an alternative to Nvidia. Palo Alto trades at 10 times sales compared to Nvidia’s price-to-sales multiple of 11 times, so investors could now get their hands on a fast-growing company at a relatively attractive valuation.
Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, Microsoft, Nvidia, and Palo Alto Networks. The Motley Fool recommends the following options: long January 2023 $57.50 calls on Intel and short January 2023 $57.50 puts on Intel. The Motley Fool has a disclosure policy.