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Shares of Nvidia (NASDAQ:NVDA | NVDA Price Prediction) seem to be a victim of its own past successes, and while it’s tough to tell what the next big move will be as shares continue to trade sideways for a while longer, I do think that it’s worth checking in on some of the less-obvious AI plays as the wave moves from the semis towards the AI-native software side and beyond.
Of course, Nvidia remains the arms supplier in this AI war, but as long as blowouts become the new baseline expectation, it’s really tough to see how Nvidia could lift the bar when everyone is looking for that one big miss that may very well single-handedly spark the bursting of an AI bubble.
Why Nvidia might need time to settle before its next big breakout
While it seems like Nvidia’s next leg will probably be lower, especially as the broader market itself runs out of momentum, I did note that its earnings will probably dictate the trajectory of the stock over the long haul.
And while a handful of exceptional quarters might not be able to kick off that sustained upside rally, every surge in earnings will stand to reduce that price-to-earnings (P/E) multiple. If the stock does nothing while earnings continue to rise at such a blistering pace, the name will eventually become a value stock, and maybe even a deep-value stock.
The big question, though, is what happens when Nvidia eventually comes up short in a quarter?
Even the world’s best company can’t keep hitting home runs every single pitch that’s thrown its way. In due time, Nvidia could strike out for one reason or another. These days, bottlenecks might be holding AI back enough to give the impression that the AI boom is slowing or that an AI bubble is about to burst.
And given the risk of a miss, Nvidia remains a risk-on play, no matter how cheap the multiple gets. Until signs suggest the AI boom is entering a wintry phase, though, Nvidia stock will appear way too cheap. As to whether it’s too cheap to be true, though, remains another question entirely.
Oracle: A timelier stock that analysts expect big things from
In the meantime, the “second wave” plays might be timelier bets as Nvidia stock runs into a wall. As more CapEx and investment shifts to infrastructure, we’ll probably see names like Oracle (NYSE:ORCL) outshine the big AI chip winners of yesteryear. Undoubtedly, Oracle has crashed violently, with shares now off more than 50% from all-time highs. At its worst, the shares shed close to 59% of their value from peak to trough.
Its aggressive data center push is costly, daring, and has caused its bonds to take a trip to the penalty box. But don’t expect Larry Ellison to back down despite the huge pile of debt and dependence on OpenAI’s financial health. The firm has levers, including share issuance, selling off some of its non-infrastructure assets, and even laying off more staff to shore up enough financial flexibility to continue to add more fuel to OCI. In any case, all of these financial risks tied to Oracle seem to be yesterday’s news.
It’s this high degree of leverage, potential dilution, and risk that’s off-putting to falling-knife-catchers. That said, if the AI opportunity is real, the reward could outweigh the risk. After all, Oracle can always buy back stock later on, after the massive cash flows start rolling in.
For now, I think management is more concerned with powering past bottlenecks to get those data centers up and running as quickly as possible. The demand is there, but there’s a debt wall, the need for more cash, and client concentration.
The bottom line
If you believe in the AI revolution and the many analysts covering the name (many of whom are hanging on to their $300+ price targets), I think Oracle is likelier to be a bargain at less than 20 times forward price-to-earnings (P/E) than a trap. If AI is more than just a bubble, it’s bold and brilliant to deprioritize everything else to get the OCI engine humming, even if it means conducting layoffs and selling assets, like Cerner, at a discount.