Nvidia (NVDA 0.48%) has just become the biggest company in world history, with its market cap surging above $5 trillion for the first time. Nvidia alone now accounts for 8% of the S&P 500's value. This level of concentration hasn't been seen since the 1970s.
One expert is urging investors to keep their "foot on the gas pedal" when it comes to holding Nvidia stock. His rationale makes a lot of sense -- but there's a catch.
NASDAQ: NVDA
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This expert believes Nvidia is still a buy for investors
Tim Urbanowicz, the chief investment strategist at Innovator Capital Management, wasn't surprised to see Nvidia soar past the $5 trillion mark this week. Nvidia's stranglehold on the GPU market is simply undeniable, with most estimates pegging it with a market share of 90% or more. When it comes to artificial intelligence (AI) and machine learning, GPUs are essential components. It's possible that the current AI revolution that is now unfolding wouldn't be possible without these specialized components, which enable parallel mathematical calculations on huge datasets -- a critical process for training and executing complex AI models.
Nvidia's current position is no mistake. It invested early in GPUs tailored specifically for AI use cases. And its CUDA developer platform has created a level of "stickiness" for its product ecosystem. CUDA allows users to customize Nvidia's chip performance for their specific needs, which creates more efficiency and performance gains than would otherwise be possible, but also creates friction costs for switching to competing products.
Urbanowicz thinks investors should stay "on the gas pedal" when it comes to owning Nvidia stock. But he also think investors should look elsewhere for higher potential ideas. "We do think a lot of the easier money has been made in the stock," Urbanowicz warns. "We think looking down in the sub-$500 billion market cap range and a lot of the AI infrastructure names probably makes a lot more sense."
Which stocks might he be talking about? Two companies immediately come to mind.
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Two stocks Nvidia investors should consider buying
Two other chip stocks, Intel (INTC +5.42%) and Advanced Micro Devices (AMD +1.64%), look promising right now despite their soaring stock prices. Both companies have seen their valuations jump by more than 100% this year. But from a market-cap basis, there's still plenty of room left to run.
Right now, AMD has a market cap of just $420 billion, while Intel is valued at just $200 billion. Both, however, are arguably just as exposed to AI tailwinds as Nvidia over the long term. AMD, for example, has secured several notable AI partnerships in recent months, including Oracle and OpenAI.
As Fool.com contributor Leo Sun observes:
Oracle plans to install 50,000 AMD GPUs across its cloud infrastructure platform. OpenAI aims to deploy up to 6 gigawatts of AMD's CPUs in its data centers over the next few years, and it even acquired stock warrants that could eventually give it a 10% stake in the chipmaker. Those deals strongly indicate that Oracle and OpenAI are eager to curb their dependence on Nvidia.
Intel, of course, recently closed a deal with Nvidia that will see the two companies partner on custom chips that may ensure Intel's presence in data centers around the world. This is great news for Intel, as it reduces the need for it to spend heavily in an attempt to compete with Nvidia directly over the long term.
Instead, Intel can now continue to produce leading CPUs -- an area in which it still excels at -- co-packaging these CPUs with Nvidia's GPUs to create an ecosystem of products that ties the fates of both companies together. In this way, buying Intel stock results in a very complementary portfolio position to Nvidia.
