Nvidia (NVDA +5.93%) has been the stock everyone is talking about for quite some time -- and for good reason. The company dominates the artificial intelligence (AI) chip niche with a market share of about 80%, and this has translated into record earnings. Even better, Nvidia's focus on innovation means its dominance is likely to last.
That said, Nvidia's stock isn't cheap, and it has lost some ground recently. It's down by about 7% over the past month, and is off by about 15% from the all-time high it touched this summer. I think that loss of momentum is temporary, though, and believe this top tech company still represents a fantastic long-term investment.
But right now, there exists a stock that has recently picked up momentum, is at an earlier stage in its latest growth story, and is inexpensive. This player, too, represents a great long-term investment. That's why, today, I would forget Nvidia and buy this magnificent tech stock instead.
Image source: Getty Images.
A focus on cloud infrastructure
So which company am I talking about? One that was long known for its database software, but now is on its way to becoming a key player in the world of AI: Oracle (ORCL +4.68%). The tech company put a focus on cloud infrastructure and services as the AI boom accelerated, and this has turned out to be a smart strategy.
Today, the cloud services segment is the company's biggest business, and its operating income and earnings per share have taken off. Other financial metrics are showing amazing growth too. Cloud infrastructure revenue, for example, soared 45% year over year to $2.2 billion in its recently completed fiscal 2024 first quarter. Importantly, its remaining performance obligations surged 53% to $99 billion. This metric of yet-to-be-billed revenue offers visibility into its future growth.
I also like the fact that Oracle's return on invested capital, which dropped in recent years, is starting to head higher again -- showing that the company is progressively benefiting from its investments in growth.
ORCL Return on Invested Capital data by YCharts.
Now, let's take a look at exactly why Oracle is seeing success. After all, it's a much smaller cloud player than market leader Amazon Web Services (AWS) or Microsoft Azure. Oracle wins on its versatility, allowing customers to use its services directly through Oracle as well as across other cloud services. The company recently struck a deal with AWS and already had similar agreements in place with Microsoft and Alphabet's Google Cloud -- deals that are helping Oracle boost the growth rate of its database business.
Its cloud database services revenue rose more than 20% in its most recently reported quarter, and the company expects this area to be the third growth driver, along with cloud infrastructure and strategic software as a service.
NYSE: ORCL
Key Data Points
Access to AWS customers
These agreements with the biggest cloud infrastructure providers mean that if you want to use Oracle products or services, you don't have to choose just one cloud service -- and this flexibility appeals to customers with diverse workloads. The AWS deal, in particular, is big because it offers Oracle exposure to a huge customer base, as AWS is the world's biggest cloud services provider.
"AWS customers will get easy and convenient access to the Oracle database when we go live in December later this year," Oracle CEO Safra Catz said.
It's also important to remember that we're in the early days of this AI build-out. According to one forecast from the research firm MarketsandMarkets, the AI market is worth about $215 billion this year and will grow to more than $1.3 trillion by the end of the decade. This suggests there's a long path of growth ahead for Oracle.
Now, let's take a look at valuation. Oracle trades for 26 times forward earnings estimates, while Nvidia trades at 40 times forward earnings estimates. Considering Oracle's recent performance and future prospects, the stock looks reasonably priced even after its 2024 gains. Oracle stock has climbed by about 58% so far this year as investors applaud its progression in the AI market.
All of this means that right now, if you're looking to buy one AI stock, you might want to temporarily forget about Nvidia and instead turn to this bargain player with plenty of room to run -- in the near term and the long term.
