Investors believe it is the must-win option in the AI field.$NVIDIA (NVDA.US)$There is no doubt that NVIDIA has taken the lead in the chip market used for AI model training and reasoning. The April revenue this year increased by 262% compared with the same period last year, driving profit growth of 629%. Wall Street estimates revenue growth of 110% for NVIDIA's July quarter, marking the fifth consecutive quarter of triple-digit growth.

But from a different angle, we have seen Nvidia's growth slow down. In its past four quarters' financial reports, the quarter-on-quarter growth rate has dropped from 88% to 34%, then to 22%, and finally to 18%.

Eric J. Savitz, a reporter for Barron's, said, "I'm not stupid enough to stand in front of a Mercedes-Benz truck—I would not advise anyone to go short on Nvidia stocks. But the whole situation seems, if not unstable, at least not sustainable. I'm not a doubter of AI. I haven't even considered the intensifying competition in the AI chip field or the problems that enterprise software companies face in translating AI promises into real profits. But Nvidia's market cap has already surpassed that of any company, now or in the future."

In addition, Nvidia's forward P/E ratio has risen from about 25 times at the end of last year to the current 45 times. Even more striking, this stock trades at 20 times the estimated revenue for fiscal year 2026 according to Wall Street estimates.

Several years ago, Savitz wrote a column citing Bernstein analysts' data showing that stocks with a P/S ratio of more than 15 times are often bad investments. According to Bernstein's data from 1970 to 2020, these stocks underperformed the market by 18 percentage points on average in the following three years, and 28 percentage points in the following five years. For stocks with a P/S ratio of more than 20 times, the return was even worse.

NVIDIA's market cap is now almost five times the estimated global chip sales for next year - yes, from every company in the world. Microsoft has seven times the number of employees and twice the sales of NVIDIA. Apple has five times the number of employees and three times the sales of NVIDIA. However, last week, NVIDIA's market cap surpassed both of them.

There is one more thing. Some AI infrastructure companies' stocks don't need to take on the heroic assumption that Nvidia's stock does. Here are some ideas, which have been mentioned before in this column or elsewhere in the magazine. Even though they don't have triple-digit growth, they will all benefit from sustained AI growth.

$Micron Technology (MU.US)$Do you know what AI data centers need besides GPUs? A large amount of high-bandwidth storage. Micron has seen demand for this type of storage exceed its supply. Demand for smartphones and PCs that support AI capabilities will also increase.

$Arista Networks (ANET.US)$What else is needed as data centers grow? Network hardware. Microsoft and Intel's platforms account for about half of Arista's sales, and they are both increasing spending to meet growing demand for AI.$Meta Platforms (META.US)$When combining GPUs into AI server racks, more fiber-optic connections are needed.

$Corning (GLW.US)$As AI-capable PCs truly become a market, Qualcomm's Snapdragon X processor is poised to take market share from Intel and AMD. These processors are based on Arm's chip design. At the same time, SoftBank owns 90% of Arm and the transaction value is about 50% of net asset value. Their fate is intertwined.

$Arm Holdings (ARM.US)$/$Qualcomm (QCOM.US)$/$SoftBank Group (9984.JP)$Oracle is now competing directly with Amazon and Microsoft in the cloud computing arena and gaining market share. Despite sluggish growth for years for the enterprise software giant, it is now poised to return to double-digit growth. Oracle recently signed up OpenAI as a customer and is working with Microsoft and Google to make their AI clouds more interoperable.

$Oracle (ORCL.US)$There really is no better choice than Taiwan Semiconductor to build AI chips. NVIDIA, AMD and even Intel rely on Taiwan Semiconductor's advanced factories to manufacture AI chips.$Amazon (AMZN.US)$, $Alphabet-A (GOOGL.US)$These two hardware companies have seen a surge in demand for NVIDIA-based AI servers; Dell will also benefit from the upcoming AI PC wave. They are both great choices with forward-looking revenues about twice the current revenues.

$Taiwan Semiconductor (TSM.US)$Microsoft is a multi-faceted bet, benefiting from the rise of OpenAI, improving demand for its Azure cloud, a series of AI assistants, and Bing gradually returning as at least a marginal competitor in search. No software company is better positioned than it.

$HP Inc (HPQ.US)$/$Dell Technologies (DELL.US)$As a leader in creative and marketing software, Adobe has fully embraced AI. Wall Street has been worried about competition from emerging AI companies - stocks have fallen 12% this year - but Adobe has already begun to realize real revenue from AI-enhanced versions of its content creation software. Buy low.

$Microsoft (MSFT.US)$Microsoft is a multi-faceted bet, benefiting from the rise of OpenAI, the improvement in demand for its Azure cloud, a series of AI assistants, and the gradual return of Bing as at least a marginal competitor in search. No software company is better positioned than it.

$Adobe (ADBE.US)$Global investors believe that Adobe is a must-have for the creative and marketing sector with its extensive platform suite. AI is one of its hottest areas.

Edited by Jeffrey