Nvidia (NVDA 2.71%) is now the largest publicly traded company in the world, with a market capitalization of nearly $4 trillion. Wall Street is swooning over the stock in the days of major artificial intelligence (AI) investment.
"We are entering the next 'Golden Wave' of Gen AI adoption, and NVDA is at the front-end of another material leg of stronger than anticipated demand," says Ananda Baruah, an analyst at Loop Capital. "We remind folks that NVDA remains essentially a monopoly for critical tech, and that it has pricing (and margin) power."
Despite the fanfare, there's actually another major AI stock that has quietly outperformed Nvidia this year. Most people have heard of this business, but few understand how well it is positioned for the next decade of artificial intelligence growth.
NYSE: IBM
Key Data Points
Big Blue is riding the artificial intelligence wave
Investors have been referring to IBM (IBM 1.61%) as "Big Blue" for decades. In the past, the company was known as a technology heavyweight. Over time, however, many of its business segments stalled, being overtaken by more nimble competition.
IBM never stopped investing in critical sectors like AI, however. Today, those investments are paying off big. IBM's generative AI business is already producing $6 billion in annual revenue. Considering demand for AI solutions is expected to grow by more than 30% over the next decade, this could soon become one of IBM's biggest profit drivers.
Quantum computing is also an exciting business opportunity for IBM. The firm recently unveiled its "Quantum Starling" roadmap, which anticipates a large-scale, fault-tolerant quantum computer by 2030. In layman's terms, IBM thinks it will be one of the first, if not the first, to launch a flexible quantum computer that can handle complex requests at scale -- a historic breakthrough.
"While still in the early stages of playing out, IBM is taking this multibillion-dollar quantum computing industry head-on by providing improved software and hardware capabilities to create increased use cases for various sectors," analysts at Wedbush recently wrote. Considering quantum computing can initiate an entirely new wave of AI innovation, IBM's dual focus on both AI and quantum computing could give it a serious long-term edge on competitors focusing on just one arena.
This all begs the question: Should you ditch Nvidia stock for IBM? The answer might surprise you.
Image source: Getty Images.
Should you buy IBM over Nvidia stock?
IBM is an exciting AI stock. But there are a few things you should understand about the business versus Nvidia. First, IBM is a large, diversified company. Only a fraction of its business is currently exposed to AI tailwinds directly. That's why analysts predicts just 5.5% revenue growth for IBM this year, versus 53% revenue growth for Nvidia. While IBM does seem to be investing in all the right areas, it will take time for these investments to become meaningful drivers of both sales and profits.
Second, IBM is more focused on software than hardware. Nvidia's AI GPUs are widely considered to be the best in the business. And due to its CUDA developer platform, the company has been able to maintain a market share of more than 90% for data center GPUs. IBM, meanwhile, is arguably in a much more competitive field, at least over the near term.
As an analyst from Zack's Research concludes, "IBM faces stiff competition in most of its markets." So while Nvidia's products remain the go-to infrastructure for the AI industry, IBM's services are merely an option among a large variety of choices.
In summary, AI investors shouldn't ditch Nvidia for IBM just yet. But having exposure to both companies in your portfolio ensures that you're betting on the entire supply chain of AI -- everything from the hardware the AI revolution is being built on to the software that end consumers use.
