Nvidia’s Stock Rally: Exploring Alternatives in the AI Sector

Nvidia‘s (NASDAQ: NVDA) stock has skyrocketed approximately 27,340% over the last decade. The surge is largely driven by its data center business, which supplies high-end GPUs designed for complex artificial intelligence (AI) tasks. This growth has solidified Nvidia’s position as a key player in the rapidly expanding AI market.

Demand for Nvidia’s data center GPUs continues to outpace supply as companies upgrade their servers for the latest AI applications. The company enjoyed a remarkable 126% revenue increase in fiscal 2024 (ending January 2024), with analysts predicting a compound annual growth rate (CAGR) of 57% from fiscal 2024 to fiscal 2027, alongside an astonishing EPS growth rate of 345%.

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Despite these robust expectations, Nvidia’s stock is currently valued at 31 times next year’s earnings, which may not indicate overvaluation. However, its long-term growth could be restrained by challenges such as cheaper competition, the rise of first-party AI accelerator chips, stricter U.S. export regulations targeting Chinese firms, and an ongoing antitrust investigation in China.

While Nvidia remains an attractive investment in the AI space, investors should also consider other promising stocks. Two notable alternatives to examine are Innodata (NASDAQ: INOD) and Taiwan Semiconductor Manufacturing (NYSE: TSM).

Innodata: A Small-Cap High-Growth Stock

Founded in 1993, Innodata initially experienced modest growth as an IT services and software provider. However, its stock price soared from around $1 at the end of 2019 to nearly $35 today. This remarkable increase has resulted from launching generative AI training services for several “Magnificent Seven” companies.

Historically, Innodata primarily offered business process consulting and software tools for managing digital data in various sectors, including government, aerospace, and finance. Until 2019, its revenue grew at a meager CAGR of 6%, largely overshadowed by giants like IBM and Microsoft.

However, recent challenges faced by tech leaders in efficiently preparing data for AI applications opened a new path for Innodata. Many organizations reportedly spend about 80% of their time preparing data for AI projects, leaving only 20% for actual AI training. To tackle this issue, Innodata introduced a suite of microservices in 2018 to prepare custom data for AI uses.

From 2019 to 2023, Innodata’s revenue grew at a CAGR of 12% as demand for its AI training services rose sharply. Looking ahead to 2026, analysts expect its revenue to rise at a CAGR of 42% as it expands its client base and begins new services. The company is projected to become profitable in 2024 and grow its EPS at a CAGR of 21% over the following two years.

With an enterprise value of $1 billion, Innodata appears reasonably valued at 45 times forward earnings and five times revenue, suggesting considerable potential for growth.

TSMC: The Essential Player in AI Manufacturing

Nvidia relies on TSMC, the world’s leading contract chipmaker, to produce its top-tier chips. TSMC is crucial for “fabless” companies like Nvidia, AMD, Qualcomm, and Apple. As such, it forms the backbone of the semiconductor industry.

Nvidia’s strong AI chip sales bolster TSMC’s high-performance computing (HPC) sector, which comprised 51% of TSMC’s revenue in the third quarter of 2024. For the full year, TSMC projects nearly 30% revenue growth, a recovery from a 9% decline in 2022, as the PC and smartphone markets stabilize and AI demand continues to grow. Intel’s recent challenges may also lead more chipmakers to strengthen ties with TSMC.

TSMC plans to maintain its lead over Intel and Samsung by significantly increasing production of its cutting-edge 2-nanometer chips in 2025. Analysts forecast revenue and EPS growth at CAGRs of 25% and 29%, respectively, from 2023 to 2026 as this growth cycle advances.

Given these projections, TSMC may be undervalued at 18 times next year’s earnings. Although geopolitical tensions and export regulations concerning China may pose challenges, investing in TSMC remains a straightforward way to benefit from the growth of both the AI and semiconductor sectors.

Should You Consider These Two Stocks Instead of Nvidia?

Innodata may appeal to growth investors seeking speculative opportunities, while TSMC could be a stable play for those wanting exposure to the AI market without entirely relying on Nvidia. Neither stock can fully replace Nvidia in a tech-focused portfolio, but they both serve as valuable options for diversifying investments in AI.

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Leo Sun has positions in Apple. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Intel, Microsoft, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends International Business Machines and recommends the following options: long January 2026 $395 calls on Microsoft, short February 2025 $27 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.