Nvidia (NVDA 3.38%) was one of the most coveted stocks on the market for quite some time thanks to its rapid growth. Much of that growth in Nvidia stock is due to booming demand for the graphics cards that power a variety of applications ranging from gaming computers to data centers and vehicles.
However, the high-flying graphics card specialist fell from grace starting in 2022, down 57% year to date. The loss of momentum in the key gaming GPU (graphics processing unit) business, as well as restrictions by the U.S. government on sales of data center chips to China, are going to weigh on Nvidia's performance in the short run. Of course, Nvidia has enough catalysts in the bag to turn its fortunes around in the long run.
But investors may want to stay away from this Nasdaq stock until there are clear signs of a turnaround in the company's business. That's especially true considering that Nvidia continues to trade at an expensive 47 times trailing earnings.
Further signs of weakness could send the stock lower given its rich valuation, but there are other promising Nasdaq stocks that tech investors should consider now given their impressive growth and attractive valuations compared to Nvidia's. With that said, let's take a closer look at two of my favorite alternatives to Nvidia right now.
1. Advanced Micro Devices
Just like Nvidia, Advanced Micro Devices (AMD 3.05%) also sells graphics cards for data centers and personal computers (PCs). However, the company has remained unaffected by the slowdown in the PC and gaming GPU markets thanks to a more diversified business and the market share gains that it has been scoring against Intel.
The company finished the second quarter of 2022 with a 70% year-over-year increase in revenue to $6.6 billion. Its earnings shot up 67% from the prior-year quarter to $1.05 per share. AMD forecasts a 60% increase in revenue in 2022 to $26.3 billion, driven by the growth of its data center and embedded businesses. The acquisition of Xilinx, which was completed earlier this year, is going to play a key role in this impressive growth.
It is worth noting that AMD is expected to sustain its impressive growth for a long time. Analysts are forecasting an annual earnings growth rate of nearly 27% for the company. That's higher than the 23% annual earnings growth analysts expect from Nvidia over the same period. It is not surprising to see why AMD's growth is expected to outpace Nvidia's.
AMD has a much better outlook for the current year, as we saw above. Nvidia, on the other hand, expects to deliver $5.5 billion in revenue in the current quarter after adjusting for a potential $400 million negative impact from the restriction in sales to China. The updated guidance for the third quarter of fiscal 2023 points toward a 19% drop in revenue from the prior-year period. The chipmaker is expected to finish the fiscal year with a flat revenue performance.
Meanwhile, AMD is making solid progress in lucrative markets such as data center processors, an area that Nvidia has yet to tap. Also, AMD supplies its custom chips to the likes of Microsoft, Sony, and Valve for their gaming consoles. These markets give AMD an advantage over Nvidia.
The momentum is on AMD's side, and so is the valuation. The stock is trading at 36 times trailing earnings, which is a nice discount to Nvidia. Additionally, AMD's forward earnings multiple of 15x is well below Nvidia's multiple of nearly 39x. So 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 3.55%) has sprung into the limelight following management's stock split announcement last month. However, a closer look at the company's recent results and prospects indicates that there are more reasons to buy it than just the stock split.
The company released its fiscal 2022 results for the year ended July 31, 2022, on Aug. 22. It closed the year with a 27% year-over-year increase in revenue to $1.6 billion in fiscal Q4, while full-year revenue was up 29% to $5.5 billion. More importantly, the company's billings increased 37% during 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 billings refer to the money that hasn't been recognized as revenue yet. Its remaining performance obligations (RPO), which is the value of customer contracts that have yet to be fulfilled, was up 40% year-over-year last quarter to $8.2 billion.
Not surprisingly, Palo Alto expects another solid year in fiscal 2023. Its revenue is expected to increase 25% this year to a range of $6.85 billion to $6.90 billion. The company also expects adjusted earnings in the range of $9.40 to $9.50 per share, up 24% to 25% from last fiscal year's earnings of $7.56 per share. The long-term earnings growth forecast is similar, with analysts expecting nearly 26% annual earnings growth from Palo Alto for the next five years.
The secular growth in cybersecurity spending and Palo Alto's solid position in this market should pave the way for impressive top- and bottom-line growth at the company. All this makes this cybersecurity stock worth buying, especially if you're looking for an alternative to Nvidia. Palo Alto is trading at 10 times sales, compared to Nvidia's price-to-sales ratio of 11x, so investors could get their hands on a fast-growing company at a relatively attractive valuation right now.
