Nvidia (NASDAQ: NVDA) has been one of the hottest stocks on the market over the past 18 months. Its shares have increased sixfold thanks to its crucial role in the spread of artificial intelligence (AI). But Nvidia has also crushed the broader market by a wide margin over the past decade.
The stock has risen more than 20,000% in the past decade, with these stunning gains crushing the market. Technology sector Nasdaq-100 index jumped 428% by an astronomical margin. With a $5,000 investment in the stock a decade ago, Nvidia has become a millionaire maker.
Not everyone might be comfortable paying 38 times sales and 55 times earnings for Nvidia stock right now, even though it might justify that expensive valuation due to a massive $1 trillion total addressable market. Investors looking to buy attractively valued stocks that could make them richer in the long run should consider this instead Metaplatforms (NASDAQ: META) And Oracle (NYSE: ORCL).
Not only are these companies significantly cheaper than Nvidia, but they’re also on track to take advantage of some huge growth opportunities that could skyrocket their stock prices in the long term. Let’s take a look at the reasons why Meta and Oracle could be ideal choices for investors looking to build a million-dollar portfolio.
1. Metaplatforms
Shares of Meta Platforms are up 92% over the past year, and the company’s recent quarterly report indicates it’s built for more profits due to its accelerating growth. The social media giant’s first-quarter revenue rose 27% year-over-year to $36.5 billion, while adjusted earnings rose 114% year-over-year to $4.71 per share.
Meta’s impressive year-over-year growth was driven by a solid 20% year-over-year increase in ad impressions, as well as a 6% increase in the average price of each ad. AI plays a key role in driving the stronger growth of Meta’s advertising business by delivering relevant content to users across its suite of apps, which in turn increases the number of relevant ads served to its users.
CEO Mark Zuckerberg said at the company’s April earnings conference call that its AI recommendation system is responsible for 30% of posts made to its users’ Facebook feeds, while more than 50% of content on Instagram is recommended by AI. It’s worth noting that Meta is constantly introducing AI-related tools for advertisers, making it easier for them to create and optimize ad campaigns.
The company will roll out more generative AI tools as the year progresses to help advertisers improve the performance of their ads and enable them to increase the return on the ad dollars they spend. The great thing is that advertisers are already reaping the benefits of Meta’s AI tools. In January this year, a Meta executive said that AI is driving a 32% increase in return on ad spend for advertisers, while helping them reduce acquisition costs by 17%.
Based on this performance, Meta Platforms predicts another quarter of solid growth. The company expects second-quarter revenue to reach $37.8 billion, at the midpoint of expectations, which would be an 18% increase from the year-ago period, when it reported 11% revenue growth. In fact, analysts predict that the company’s profits will grow 30% annually over the next five years, which would be an acceleration from the 11% annual profit growth the company has achieved over the past five years.
It won’t be surprising to see Meta achieve such impressive growth as AI helps it capture a larger share of the digital advertising market. Digital ad spend is forecast to grow 13.2% by 2024, and Meta’s Q1 growth and Q2 forecast tell us it is growing at a faster pace than the end market. More importantly, according to KBV Research, digital ad spending is expected to grow 14.5% annually through 2030, generating annual revenue of just over $1 trillion.
Meta generated $143 billion in revenue over the last twelve months, meaning there’s still plenty of room for growth in the future. Investors would do well to buy Meta stock while it is trading at 27 times earnings margin, which is significantly lower than Nvidia’s earnings multiple. The stronger earnings growth could reward investors with more upside potential.
2. Oracle
Demand for cloud-based AI services has grown dramatically as companies around the world look to develop AI applications, and this has proven to be a boon for Oracle. The company, which made a name for itself by providing database software, is now witnessing solid growth in its cloud computing business.
In the third quarter of fiscal 2024 (for the three months ended February 29, 2024), Oracle reported a 25% increase in cloud revenue year-over-year to $5.1 billion. The segment’s growth outpaced the company’s total revenue increase by 7% to $13.3 billion. More specifically, demand for Oracle’s cloud infrastructure skyrocketed, with revenue from this niche increasing 49% year over year to $1.8 billion.
The good thing for Oracle investors is that AI has helped the company build a healthy revenue pipeline. This was evident in the 29% year-over-year increase in the company’s remaining performance obligation (RPO) last quarter, a measure that refers to the total value of future contracts that Oracle must fulfill. The fact that this metric rose faster than Oracle’s revenue is a positive sign.
Oracle pointed out that it has “received large contracts to reserve cloud infrastructure capacity as demand for our Gen2 AI infrastructure significantly exceeds supply.” The company has been bringing new cloud data centers online very quickly to cater to the healthy demand it has witnessed. So it won’t be surprising to see the company’s cloud AI-focused revenue pipeline improve further in the future.
According to Fortune Business Insights, the cloud AI market is expected to grow 31% annually by the end of the decade and generate annual revenues of $398 billion by the end of the forecast period. As a result, there is a good chance that Oracle’s growth could accelerate in the long term. For example, analysts expect Oracle’s earnings growth to accelerate in the coming years, compared to fiscal 2023 earnings of $5.12 per share.
Considering that Oracle currently trades at 6.6 times revenue and 20 times forward earnings, investors can buy it at a much cheaper valuation compared to Nvidia. That could prove to be a smart move: Oracle’s great opportunity in the cloud AI market could translate into stronger earnings growth in the long run and lead to the market rewarding the stock with more gains. Investors looking to add cloud stocks to their portfolios that can help them achieve their goal of becoming millionaires would do well to buy Oracle right away.
Should You Invest $1,000 in Meta Platforms Now?
Before you buy shares in Meta Platforms, consider this:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Meta Platforms wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $581,764!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns May 13, 2024
Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Meta Platforms, Nvidia, and Oracle. The Motley Fool has a disclosure policy.
Forget Nvidia: Consider These 2 Millionaire Maker Stocks to Buy Instead was originally published by The Motley Fool
