Meta Platforms and Alphabet recently announced products that challenge Nvidia’s position.
Nvidia has enjoyed being on top of the world of artificial intelligence (AI) for some time now. The company’s graphics processing units (GPUs) are best-in-class for processing AI workloads, and many companies are purchasing thousands of these GPUs to set up their AI computing infrastructure. But these GPUs aren’t cheap. Nvidia’s flagship GPU, the H100, is rumored to cost around $30,000 to $40,000 each.
The margins on these units are very impressive, which is driving Nvidia’s profits by leaps and bounds. But when one company grabs such a large goldmine, there are bound to be challengers to grab a piece of the market.
meta platform (meta -4.13%) and alphabet (GOOG -1.10%) (Google -1.23%) are two of the latest challengers, and their new products are certain to take over some of Nvidia’s market share.
1. Metaplatform
Meta Platforms is best known for the social media companies it owns, including Facebook, Instagram, Threads, WhatsApp, and Messenger. Since these companies are essentially core advertising platforms, Meta has devoted the bulk of its AI resources to developing models to improve ad performance. This effort could boost Meta’s business in the long run, since better products usually come with a premium price.
Meta’s workloads are so specialized and enterprise-specific that we developed our own chip, the Meta Training and Inference Accelerator (MTIA). The company developed this chip because GPUs, his Nvidia product that powers the training of AI models, were not suited to optimally run the workload. This type of product development, creating one-off chip infrastructure to optimize workloads, can be problematic for Nvidia as many of its largest customers have the resources to develop these products. there is.
Additionally, Meta is also developing next-generation GPUs, so it is directly challenging Nvidia with new product announcements. The announcement didn’t give much information about the product, but it does indicate that Meta is eyeing some of his Nvidia’s market share.
But Meta’s stock isn’t trading in a way that makes those investments work.
META PE Ratio Data by YCharts
At 25 times forward earnings, Meta’s valuation is about the same as it was over the past five years when it was just a social media company. As a result, you can buy shares in Meta for your advertising business and benefit from AI infrastructure development for free.
This seems like a great investment proposition, and makes Meta stock a strong buy.
2. Alphabet
Alphabet is similarly challenging Nvidia. Meta recognized the same challenges. This means that GPUs are not fully suited for AI workloads if the workload is configured to be efficient. Therefore, Alphabet created the Tensor Processing Unit (TPU) and recently announced its fifth version.
This version integrates the CPU (Central Processing Unit) and can achieve twice the performance of the previous generation TPU. Google Cloud Vice President Mark Lohmeyer believes this will make it easier for customers to switch their workloads to Google Cloud. Unlike his Nvidia GPUs, which can be purchased, Alphabet’s GPUs are only available to Google Cloud customers.
But it was a promising proposition for many AI companies. Approximately 70% of generated AI unicorns (private companies worth at least $1 billion) are already Google Cloud customers. Because we already have such a large core customer base, we can demonstrate to prospective customers the benefits of running their AI workloads on Google Cloud.
Alphabet is in a similar situation as Meta, as it only sets prices for historic businesses.
GOOGL PE Ratio Data by YCharts
Alphabet’s stock price is fairly cheap, with trailing and forward price-to-earnings ratios still below historical levels. With Google Cloud’s business potentially improving thanks to better AI workload training hardware, the stock still has plenty of upside, making it a strong buy.
Suzanne Frey, an Alphabet executive, is a member of the Motley Fool’s board of directors. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Keithen Drury holds positions at Alphabet and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.
