Artificial intelligence (AI) stocks have soared over the last couple of years as optimism about the technology and its capabilities continues to grow. As most investors know, one of the more notable success stories is Nvidia, which is up more than 11-fold from its bear market lows in late 2022.
However, with Nvidia in a battle with Apple for the world’s largest market cap, investors will likely have an easier time earning higher returns in smaller stocks. To that end, smaller stocks like the two discussed below may have positioned themselves for an Nvidia moment in 2025. A closer look shows why.
The No. 1 and No. 2 companies are often the best investments in a given industry, and 2025 could be the year Advanced Micro Devices (NASDAQ: AMD) stands out as Nvidia’s leading competitor in the AI accelerator market.
Although Nvidia took an early commanding lead in the AI accelerator market, AMD has a history of catching up to (and sometimes surpassing) competitors, which could be the case with AI accelerators.
Admittedly, AMD’s ROCm is far behind Nvidia’s CUDA, a software platform that helps developers speed up application development. Such an advantage continues to reinforce Nvidia’s competitive lead.
Nonetheless, Grand View Research forecasts a compound annual growth rate (CAGR) of 29% through 2030. With Nvidia’s inability to meet demand amid that rate of increase, AMD has an opportunity to compete.
Moreover, AMD remains a leading company in the PC, gaming, and embedded chip markets. While these segments have not grown as fast as the data center segment that designs the AI accelerators, they remain critical parts of the chip giant.
Still, those segments have likely held back the company’s growth. In the first nine months of 2024, revenue of $18 billion grew 10% yearly.
Massive revenue slumps in the gaming and embedded segments held this growth rate back. Still, the data center segment increased revenue by 107%, while revenue in the client segment (which makes PC chips) rose 48% during this period.
Some of this sluggishness likely played a role in AMD’s 10% decline over the last year. And while its P/E ratio is more than 110, optimism about improved earnings has taken its forward P/E ratio to 25, its lowest level in two years.
That lower forward earnings multiple could provide an opportunity for buyers. As the data center segment continues with massive revenue gains, it could spark a recovery that takes the chip giant to all-time highs and beyond.
Under normal circumstances, a company like Shopify(NYSE: SHOP) would likely never experience an Nvidia moment. Numerous e-commerce platforms exist, leaving most of Shopify’s peers without a significant competitive moat.
However, Shopify has become the largest e-commerce platform in the U.S., according to Oberlo. It accomplished this by creating a fast, highly customizable site that entrepreneurs can build without prior coding knowledge. That approach eases the development process and makes Shopify a viable option for more online sellers.
Moreover, it includes a merchant services segment that provides many of the ancillary services sellers need. This includes payments, inventory management, online marketing, and numerous other services.
Additionally, customers owe much of that simplicity and versatility to AI. Through its Shopify Magic AI tool, the company can provide personalized support for online store design, product placement, marketing, customer support, and handling back-office tasks.
Such tools reinforce the company’s competitive advantage, making Shopify an obvious choice for merchants. Also, since changing platform providers is a highly disruptive process, customers tend not to switch, a factor that should work to Shopify’s advantage.
Furthermore, Grand View Research projects a CAGR of 19% through 2030. In comparison, Shopify’s revenue in the first three quarters of 2024 was $6.1 billion, a 23% increase from year-ago levels that shows it outperforms industry averages.
Most of that revenue came from its merchant services segments, indicating an added potential to increase revenue from existing customers. Those gains also helped the stock rise by nearly 50% over the last year.
Indeed, with a P/E ratio more than 100 and a price-to-sales (P/S) ratio of 17, investors may question whether to buy this stock. However, its sales multiple remains well below where it was in 2021, and with its current growth, Shopify stock is in a strong position to inspire an Nvidia moment that drives massive stock gains.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Healy has positions in Advanced Micro Devices and Shopify. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Apple, and Shopify. The Motley Fool has a disclosure policy.
