The artificial intelligence (AI) boom is going strong, representing a huge growth opportunity for investors. Many players have already seen their share prices surge in the triple and quadruple digits, but the momentum may continue for quite some time. Customers continue to spend on infrastructure buildout and the application of AI to their businesses, and this should lift revenue and the stock performance of companies that play a key role in the industry.
What stock to buy at this point in the AI story? Let's consider two current winners that are on track to score a win over time, too -- this is because they provide crucial products and services to power the AI revolution. I'm talking about Nebius Group (NBIS 1.24%) and Nvidia (NVDA 0.43%). If you only could buy one right now, though, which makes the better AI buy? Let's find out.
Image source: Getty Images.
The case for Nebius
Nebius is a growing player in the cloud infrastructure-as-a-service market. What this means is Nebius rents out AI infrastructure, such as compute and software, so that customers can run AI workloads. Customers can come to Nebius, for example, if they want access to Nvidia's top AI chips or a particular large language model (LLM) for inferencing projects.
This has helped Nebius' growth take off, as we can see in the company's latest earnings report. In the recent quarter, revenue surged 625%, and Nebius' main business reached positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) ahead of schedule. The company, considering demand for its services, increased its annual revenue run rate forecast to a range of $900 million to $1.1 billion from a range of $750 million to $1 billion.
And just this week, Nebius signed a deal worth more than $17 billion and spanning five years to provide AI infrastructure to software giant Microsoft.
Nvidia recently predicted that companies' AI infrastructure spending may reach as much as $4 trillion by the end of the decade, so it's clear the growth opportunity for Nebius is far from over. Of course, the company faces competition from major cloud service providers such as Amazon's Amazon Web Services as well as younger AI-focused players like CoreWeave. This represents a risk, but if demand continues as expected and Nebius attracts major customers like Microsoft, the company could generate significant growth over time.
The case for Nvidia
Nvidia has become an AI superstar over the past few years thanks to the dominance of its AI chips. The company makes the most powerful graphics processing units (GPUs) on the market, and customers have been rushing to get ahold of them. For example, as Nvidia prepared to release its Blackwell architecture and chip late last year, demand at a certain point surpassed supply.
All of this has helped Nvidia deliver double-digit revenue growth in recent quarters, with revenue reaching record levels. Last year, revenue soared past $130 billion. What's even better is Nvidia is very profitable on sales -- gross margin surpassed 70% in the recent quarter, as it's done in most recent quarters.
As mentioned above, Nvidia expects spending on AI to reach into the trillions of dollars by the end of the decade. And Nvidia, as the market's chip leader, is well positioned to benefit from this. The company also is known for its related products and services, from networking to enterprise software, so it can capture a broad range of customers' AI spending.
Nvidia's pledge to update its chips on an annual basis is another element that should keep revenue climbing as customers aim to get in on the very latest technology. As mentioned, the company reported high demand for Blackwell upon release late last year, and today Nvidia is seeing high demand for update Blackwell Ultra, too. All of this should keep Nvidia ahead of rivals and growing in this high-potential market.
Should you buy Nebius or Nvidia?
Nebius stock took off this week, soaring nearly 50% in one trading session on the Microsoft news. After the massive gain, the stock now trades at 40 times forward sales estimates, up from 24 just a few months ago. The Microsoft deal is a significant one and one that would add to my confidence in Nebius' future, but this good news may be priced in at today's level -- so I wouldn't necessarily rush in to the stock today.
Meanwhile today, Nvidia, a company that's proven itself over time and is well placed to benefit in the next phases of AI growth, looks reasonably priced at less than 40 times forward earnings estimates. And that makes Nvidia the better AI stock to snap up right now.
