Shares of Nvidia (NVDA +5.56%) continue to crush the market. The leading designer of accelerator chips for the explosive artificial intelligence (AI) market has seen a 215% stock price run in 52 weeks, including an 82% jump since the start of 2024. Nvidia is going from strength to strength, beating analyst estimates in each earnings report and building a mountain of AI-based profits.
But the stock market has priced a lot of future success into Nvidia's stock. The AI hardware master trades at kingly valuation ratios such as 75 times earnings and 34 times sales. I completely understand if you're not comfortable buying into a trillion-dollar stock at these lofty prices, no matter how bright its future might be. After all, I sold some of my own Nvidia stock a couple of months ago in order to reinvest some winnings in lower-priced growth stocks.
Let's look at two tech stocks that, like Nvidia, have strong growth potential today. One is available at a far more attractive valuation, and the other operates in a less crowded industry.
NASDAQ: TTD
Key Data Points
This ad-tech stock makes sense with a lofty price
Forget flashy AI breakthroughs for a moment. Do you want to invest in the backbone of the internet economy?
The Trade Desk (TTD +3.16%) is disrupting one of the most fundamental aspects of the modern digital world -- targeted advertising. As the leading independent platform on the ad-buying side of the equation, TTD is at the forefront of reshaping how companies reach customers across the rapidly evolving digital landscape.
Its dedication to research and development, evidenced by consistently increasing R&D spending, has positioned the company to lead the charge in an era without basic user-tracking tools like the third-party tracking cookie. TTD designed an alternative solution called Unified ID 2.0, is establishing this system as an industry standard, and stands ready to lean on it as the old cookies go away.
And TTD's marketing solutions are striking a chord with advertisers desperate to wring the last drop of sales-boosting efficiency out of their limited budgets. This industry has been through a sharp downturn during the inflation crisis, seen in the form of restrained or even negative revenue trends across the industry. But The Trade Desk never got that memo, and its sales never stopped soaring:
TTD Revenue (TTM) data by YCharts
I'll admit that The Trade Desk's stock is about as richly priced as Nvidia's. However, I'm less worried about competitive pressure in this case, and The Trade Desk stands much earlier in a story of long-term growth across enormous target markets.
So if you're looking for an investment that directly drives how businesses operate in the digital era, TTD might be a smarter bet than Nvidia's more speculative investment thesis.
NASDAQ: ROKU
Key Data Points
Here's a rocket ship held down by gravity
Now I'm getting to the stock that actually holds the bulk of my Nvidia gains.
Media-streaming technology expert Roku (ROKU +7.29%) absolutely crushed Wall Street's consensus estimates in the first quarter of 2024. Revenues came in 4% above the average analyst estimates and the net loss was about half as deep as Wall Street expected.
Reports like that are usually fodder for skyrocketing stock price gains. Instead, Roku's shares fell more than 10% the next day, adding more pain to an already sunken stock chart. The price drop stemmed from modest guidance for the next quarter, where the year-over-year comparisons will be made against a 2023 period where revenues rose on a price increase and a richer mix of ad-infused services.
I get it. The digital advertising downturn is still in effect, though it's fading out in a healthier economy. And nobody likes to see annual comparisons go down, even if it's because the year-ago results were artificially boosted and hard to match. Oh, and the targeted advertising market is teeming with both new and experienced channels, all trying to grab a large slice of the available ad-buying action.
But you shouldn't stop reading Roku's guidance at that point. Go on for just a few more sentences, and you'll run into a more optimistic analysis.
"We remain confident in our ability to accelerate the growth of Platform revenue and continue to grow Adjusted EBITDA, and Free Cash Flow in 2025 and beyond," the management team stated. "Roku has a direct relationship with more than 81 million Streaming Households, and we are deepening relationships with third-party platforms including DSPs, retail media networks, and measurement partners. Our business remains well positioned to capture the billions of dollars in traditional TV ad budgets that will shift to streaming."
In other words, the company is poised to soar as the ad market stabilizes and then takes off. You may have to wait until 2025, but the launch is coming. Remember The Trade Desk from the scribblings above? Well, Roku just entered a partnership with that ad-selling expert to put Roku's ad-serving properties in easy reach for TTD's buyers.
So Roku investors have a lot to look forward to. Meanwhile, the stock stands 47% below its yearly highs and an astounding 88% below the peaks of 2021. Changing hands at just 2.3 times sales and 20 times free cash flows, Roku is a high-octane growth stock trading like a deep-discount value investment.
Nvidia's shares may rise from here but Roku's prospective gains look much richer -- and more likely.
